What I’d Do: Part 2 – First We Focus On The Client

Late last week, I gave you a survey of the actions being taken at the largest audit firms to address what they see as a downturn in their business and a “necessary” cutback in staffing and expenses needed to realign their workforce with current economic conditions.

Readers of this blog know that I have pushed back hard when journalists and commenters swallow whole the whale of a bull-oney sandwich the firms feed them about their “deteriorating financial condition”.

A commenter remarked:

…The point of the firms is to make the partners money. Making less than previous years would be considered “losing money”.

If we lose clients or clients cut budgets, then there is an excess of supply. Partners are going to make a lot less money this year and some employees are losing their jobs to make up the difference.

I still fail to see why Big4 should retain more staff than they have project time to book. So far the people I have seen let go were the bottom performers at their level. That’s what happens in a down economy.

I responded:

It’s a partnership, guy. Who in the world died and told you that constant growth was a given? Making less money than prior year in a partnership or anywhere else is not “losing money”. The problem is the skewed way you look at “profitability” compared to the rest of the world and your clients. And you’re the ones we’re counting on to be the watchdogs, the guardians of the public shareholders?

The “point of the public accounting firm is to make the partners money” ? You’ve lost it. The purpose of the audit practice in a public accounting firm is to serve the public trust. That’s why you get to make any money at all. If you stop doing that, you don’t deserve squat.

I’m disgusted.

What can the audit firms do to improve scrutiny of public companies – the ones governments have invested so much taxpayer money in – now when we need it the most? Can it be done:

Without reductions in force?

Without betraying the trust of otherwise very loyal employees?

Without losing the confidence of key clients?

Without endangering quality and integrity in the work they’ve been enfranchised to do under the exclusive licensing of various federal governments and public/private bodies such as exchanges?

Without risking new lawsuits for negligence and complicity on fraud and malfeasance?

Without completely abdicating responsibility to their true client – the shareholders and investors in the public companies they audit?

I think so. Starting at the top, at a strategic level, I recommend significant changes in two main areas:

Refocus on the true client – the shareholders and investors of the public firm, and

Reform the business development process with an emphasis on meeting client needs, where they need it, how they need it, and with the kinds of resources required to do the work in a quality and risk-managed way.

Refocus on the true client – the shareholders and investors of the public firm

I am amazed at the number of times I have to explain the following basic premise to those both inside and outside the audit firms:

The auditor’s client is the shareholder and investor in the company, not the company’s management.

…By certifying the public reports that collectively depict a corporation’s financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant performing this special function owes ultimate allegiance to the corporation’s creditors and stockholders, as well as to the investing public. This “public watchdog” function demands that the accountant maintain total independence from the client at all times, and requires complete fidelity to the public trust…United States v. Arthur Young & Co., 465 U.S. 805 (1984) U.S. Supreme Court

It’s so easy to get confused. Much has been written about the inherent conflict auditors have because they are engaged and paid by those they are supposed to be auditing.And it’s a very old and tired story, one that makes the rounds each time a scandal or “crisis” occurs.

A similar conflict has been laid bare now in the case of the ratings agencies, as a result of the “financial crisis.” From the New York Times:

In recent months, Moody’s Investors Service and its rivals, Standard & Poor’s and Fitch Ratings, have been prominent in virtually every account of the What Went Wrong horror story that is the financial crisis.

The agencies put their seals of approval on countless subprime mortgage-related securities now commonly described as toxic. The problem, critics contend, is that the agencies were paid by the corporations whose debt they were rating, earning billions in fees and giving the agencies a financial incentive to slap high marks on securities that did not deserve them.

When I was in college, we were taught that our profession, the accounting profession, was more like a vocation, calling only those who could do the right thing under pressure, stand up for the shareholder, and take the heat and sometimes severe consequences for speaking up against management. This is how “professionals” managed the auditor-client relationshipconflict.

Mr Quigley said that as the profession moved away from rules “someone’s going to need to exercise judgment to apply those principles”.

“If you want to then make that transition, you have to put in place a framework for actions that a preparer [company] or auditor can take – a layer of guidance that would sit on top of a set of principles-based standards.

“You could then start to build a base for defence if someone challenges your judgement,” he said.

Last week, the SEC’s committee – on which Mr Quigley sits – discussed the idea of a “professional judgement framework” that would provide companies and auditors with “comfort that the chances of being second-guessed have been sufficiently mitigated”.

We need to reaffirm the message of the true auditor-client relationship. Let’s start in the universities, then the entry-level training in the firms, all the way to the way the practices, offices, and countries are run.Unfortunately, since the Big 4 are profit-making partnerships with an unlimited government sanctioned franchise to make tons of money with impunity it’s a tad difficult to keep those who rise to the top of the firms from becoming masters of self-serving self-preservation. Do you realize that in the largest four audit firms, the top producing partners have sold out shareholders, employees, and their souls for less than the top bonus paid at infamous AIG?

Granted, this would not be an easy conversation to have with Big 4 senior partners.

But they might, with some tough talk, realize their audit firms could be taken over by the government too, if they don’t start paying attention to the true client. Perhaps they’ll listen if I focus on the cost to the bottom line of a declining overall market and increasing litigation? Shareholders and company managements with integrity are sick of poor service.

Putting fewer professionals who are less qualified, less supervised, and less willing or able to speak up on audits and other engagements is killing the Big 4’s bottom line. Crying poor and having to cut thousands of professionals does not really speak well of the audit firms’ ability to keep settling or potentially paying out judgements of multimillion and billion dollar lawsuits. But if we can’t see their financial statements, who’s to really know for sure how “poor” they are?

Going along with corrupt, self-serving corporate management is hurting them in the public eye and with their own professionals and future recruits.

Failing to advocate for the interests of the true client, the shareholder, is now threatening the oligopoly.

The client, the shareholder, is often now the taxpayer.

And the taxpayers are mad as hell.

In my next post, I will detail the actions firms could take with regard to my second point;

-Reform the business development process with an emphasis on meeting client needs, where they’re needed, how they’re needed, and with the kinds of resources required to do work in a quality and risk-managed way.

The irony here is that SOX and all the post-enron regs have actually had the OPPOSITE effect-some years ago these firms were actually in the business of -looking out for the shareholders of public companyS

Post Enron and after SOX however BIG 4 became like the ratings crooks-BILL,BILL,BILL the client ,make THEM certify the F/S so we can cover our asses and lets get rich…nobody cared for the shareholders-it has become compliance for the sake of compliance.

a solution here(also for the ratings agencies) would be to BREAK-UP THE AUDIT DIVISIONS of the big 4 globally and then create say 20-25 middle sized,solid highly regulated global audit firms with no caps on their liabilities-the current auditor concentration model is not working,so long as Big 4 firms remain “psuedo-monopolies”,they will not act in the public company shareholders interest.

One of DT partners told me today that the firm needs to do more layoff because “the current headcount is still higher than the forecast”, even though “they have noticed that the economy is turning around”. This is just insane… I cannot believe I have worked for these greedy bastards for that many years…

Francine, you are so right, we cannot trust these greedy bastards to protect the shareholders and investors… They only care about their forecast…

If the Big4 was broken up into 20-25 middle sized audit firms, what would stop half of them being WAY more corrupt than the Big 4 ever were or will be? And then we would be down to 10 or so, more corruption and fraud and we are down to 8… This is starting to sound familiar…

@BREAK UP BIG 4 AUDIT, I am 100% with your idea breaking up the big 4. They are just way too big, and as CPA firms they should never be allowed, at any circumstances, to perform any non-attestation work.

However, I think the root problem here is still independence. No matter how many smaller firms you want to create, as long as the audit fee is paid by the management, there will be no independence. As a senior manager at Deloitte, I witnessed so many times throughout my career, if the clients are big enough and pay a big audit fee, they could get pretty much anything they wanted. My own experience: I got rolled off from a big engagement just because I found a few deficiencies. The client complained directly to the senior partners that they disagreed with the findings. The next thing I knew, I was out. Of course, the partners did not tell me the true reason; they actually told me that I did a good job at that time. But I know why, it was about “client services”. As far as the findings, they all disappeared.. Yes, I could report this to the ethic hotline. But it could also mean that my career at DT was going to be over given the power of the senior partners at that job.

I think Francine is so right above, if the big 4s don’t change the mindset that making more and more money for the partnership is the only purpose of doing audits; then they should never to be trusted as the guardians of the public shareholders.

[…] the way Francine McKenna keeps focused on the Big Four and their deficiencies but I disagree with her first central thesis that avoiding RIF could come by: Refocus on the true client – the shareholders and investors of […]

Heh, sorry to hear that #7 – I’m glad to report we KEEP people on jobs when they find errors. We would find it reprehensible to take them off once they made big findings. Not everyone rolls the same way.

Are we forgetting that the Big 4 are businesses? They are in business to attest to financial statements, nothing more. They have no higher purpose bestowed upon them. If the owners of these businesses (the partners) feel that their profits are declining, and that they can let people go and still function, then why would they not do this?

The accounting profession is a vocation? Certainly not. Should we esteem people who attest to the financial condition of public corporations? Not unless our society has degenerated so much that we find it impressive when people work with honesty and integrity.

Capitalism is efficient because of incentive. If the Big 4 have no incentive to work harder for clients, then apparently they need more competitors. Break up the big 4 if you want but don’t berate them for acting in their own self interests. Self interests. Isn’t this another principle of capitalism?

partners have zero obligation to their employees after they pay them their salaries/benefits. they are not there to be your friend, counselor, or make sure you can continue to feed your kids and pay your mortgage when clients dry up. thats your problem. maybe you should have saved some money along the way, or understood the risks of entering a billable-hour profession before you signed up.

as for partner profits: again, ITS THEIR FIRM. they can decide to take out whatever they fancy for themselves. if that means they decide to stop paying you, grow up, you have nothing to say, youre not a shareholder, you bear none of the risk, you have no capital at stake, you are nothing more than a tool, an industrial prostitute. same goes for law associates, engineers, and even PE/ibanking associates. we have no union protection, and are employed at-will. its the name of the game. remember, we can always say “I quit” at anytime as well.

as for eating hours, who cares? you’re a salaried employee, the number you bill out has no reflection on what you get paid. what happens is you have to “adjust” it? absolutely nothing! nothing happens! it becomes just another made up number, a meaningless plug, assign it if you will a name, perhaps “goodwill-my partner” if you feel the need to balance your accounts. put down whatever your manager tells you too, get a good review and move on, maybe to a better job somewhere else where you don’t have to deal with this crap.

I have read this blog for a long time, and honestly I agree with most of what appears on here, but this, this is just whining, socialist banter, collectivist drivel. As long as the firm continues to provide quality audits (a service, I have realized is actually pretty easily accomplished, no need for rocket-science, no need for too much advanced mathematical formulae, and no need for a 7 person rather than a 6 person team if things get tight) to its customer, then the firm has satisfied its legal/ethical duties in the marketplace.

And in the end it is true that the client is the shareholder. What leads to conflict is that auditors are compensated by management, solve that, solve the problem. Seems pretty easy, remove control of auditors from audit committees, and bring them to annual meetings before shareholders for review and compensation. If management wins proxy on this issue, well then, then the investors are idiots, and deserve whatever they get. But at least they had a chance.

For public companies the shareholder has always been an amorphous group. In reality, it has been the taxpayers (and more) for many years. If you have a 401(k), pension plan or other retirement investments you probably hold some shares in a public company.

It is tough to deal with two separate forces. Management hires and fires you. But your responsibility lies with the shareholders and you only have an indirect relationship with them. We need to look at ways to keep the management better aligned with the shareholders to avoid conflicts that get pushed onto auditors.

I’d like to invest in your company. I realize it won’t be in business to make money, and losses will be encouraged, but the altruistic motives will make that point moot. Enjoy that Univ of Phoenix business 101 class?

From reading your sickening post, it seems you are out of touch with the way things are right now. Let me explain.

“Are we forgetting that the Big 4 are businesses? They are in business to attest to financial statements, nothing more. They have no higher purpose bestowed upon them.” Yes. This is true. Accounting firms are a business, just like any other organization. However, to say they are in the business of doing nothing more than offer an opinion on the financials?? What happened to assuring the public trust? Assuring the shareholders who have a stake in the entity being audited? Trust man, trust! Something that has been non-existant for the past few years. And in the times we’re in now, you say auditors have no other purpose than to just give a passing grade on the financial statements…ha!

“If the owners of these businesses (the partners) feel that their profits are declining, and that they can let people go and still function, then why would they not do this?” No one is really griping about the layoffs as this is happening everywhere in almost every industry. What’s getting to a lot of people is the fact that some partners have been notorious for generating unachievable, unrealistic forecasts. Maybe if they had stopped being delusional for once and taken off their rosy-colored shades, they wouldn’t have taken as significant of a hit as they are now. Having said that, there needs to be some degree of accountability among leadership, because right now hundreds of smart, hardworking people suffered from leadership’s blatant lack of it in the form of the pink slip. Accountability man…another thing that has been non-existant in the past few years.

“Should we esteem people who attest to the financial condition of public corporations? Not unless our society has degenerated so much that we find it impressive when people work with honesty and integrity.” Ok. You do notice that when something goes wrong within a corporation…for example, fraudulent financial reporting…that when regulators find out one of the things they usually ask is “Where were the auditors?” Stakeholders look to these people dude! They depend on these people to question material issues that could go wrong and report them. Should we give them a cookie everytime they do their job adequately? No, of course not. Sure enough, however, people are looking to them. Do we find it impressive when people work with honesty and integrity? In these days, buddy, the answer is a resounding yes! Again, honesty and integrity….two more things that have been non-existant over the past several years.

“Break up the big 4 if you want but don’t berate them for acting in their own self interests. Self interests. Isn’t this another principle of capitalism?”
Oh my goodness, this puts the icing on the cake!! Please retake a remedial course in economics when you get the chance, please! First off, you are correct. Capitalism does offers incentive…reward for the organization who perform well. But tying in self-interests in the concept of capitalism? Self-interests….the reasons for many wrongdoings, the reasons for Enron, the reasons for Madoff, the reasons for Satyam, the reasons why we’re in the economic mess we’re in right now!! It seems like you’re all for self-interests Mr. Anonnnn, you’d be the perfect candidate for a partner.

For those of you who forget, CPA’s are licensed by the government because they perform a public function. If auditing, etc. were just another miscellaneous service to business, they could get certified not licensed. It is the license which gives us monopolistic privilege. Consequently , it is not just a business. It is a public function. You swear an oath. (Remember the second commandment, this is where it “not taking the name of the Lord in vein” really meets the road)

As to the Capitalists’ arguments above, I think they make the best case for taking the Capitalism out of Public Accounting. If by being businesses, firms have to put profits ahead of serving the public, then that model doesn’t work. Period! There are various alternatives for redefining the public accounting function. One would be (God Forbid!) making it a government agency. Another would be a consumers watchdog entity of some kind. Unfortunately, no matter what we did, the new agency would be vulnerable to influence peddling of some kind. After all, we’re people (Homo Lunaticus) with all our frailties. Still, we can make a better choice.

Yes, auditing and accounting is a business, but for the largest firms it’s a requirement to safegaurd the public trust. If we’re just a business, why don’t we have the same attorney client priveleges that lawyers have?

Unfortunately the system is broken, it is very difficult to enshrine the safeguarding of the public to a private, for profit enterprise. When the big accounting firms looby for accounting policy, do you think they do do with a keen interest on the ultimate public good, or what’s better for them, will get them more business and help the bottom line?

@ Finally – Ummm… by your line of reasoning Attorneys perform a public function too as they are also licensed by the government. Thus, law firms cannot be ‘just a business’ and you asking for attorney-client privilege is ridiculous. You’re not educated enough to be an attorney hence the 45K starting salary.

5 paragraphs..alas only the last one made any sense….i have no problem if they were open about their “care only about personal profitability” mission…they should risk the careers of hundreds of poor innocent students by going to the schools and giving them a wrong, misleading picture…

if firms only cared about money and nothing else, then why harp on the best places to work for ( someone should show those folks this blog), diversity( a joke – all of diversity is laid off – no more left), work-life balance (lay off pregnant, just returned from pregnancy, etc), widespread career opportunities( when you lay them off, they can choose a career from any of the rest of the employers in the world) ….

Thanks for posting, because I’ve been looking for an opportunity to discuss this issue.

You say, “partners have zero obligation to their employees after they pay them their salaries/benefits. they are not there to be your friend, counselor, or make sure you can continue to feed your kids and pay your mortgage when clients dry up. thats your problem. maybe you should have saved some money along the way, or understood the risks of entering a billable-hour profession before you signed up.”

My problem with the Big 4 firms is that, while what you say is true (to some extent), that is NOT the story told by the partnerships to staff. Quite the opposite, in fact. The story is that staff should trust in their partners to steer the right course. Do not question the firm’s decisions and/or logic and, in return, the firm will take care of you. Questioning leads to career limits. Questioning can get one counseled out of the firm.

The firms’ message of benevolent autocracy, moreover, is pervasive. Here are some examples. You should not question your compensation, because it is in line with other firms and in line with what you deserve to make at this time. You should not question the firms’ performance ranking process, because it is fair and equitable and will give you honest feedback on your performance. You should not question why partners must “own” client relationships (even when the client calls you and not the partner, and may not even know who the partner on the engagement is). You should accept the firms’ way of doing business, because it has created success and lots of money for everybody. Accept that partners decide who gets sales credit and who staffs engagements and who gets the utilization, because they know what’s best for you and your peers. Accept that the firms’ HR processes are appropriate for the situation and offer protection to the individual employee as well as to the partnership. And etc., etc., etc.

So every aspect of the firm is designed to create and promote a trusting relationship upward, while the truth is that there is little or no responsibility to the staff, and thus there is NO REASON to offer that trust. Realizing that your trust is misplaced is a good first step to truly assessing whether you belong in the firm, or should start to look elsewhere.

You also say, “as for partner profits: again, ITS THEIR FIRM. they can decide to take out whatever they fancy for themselves. if that means they decide to stop paying you, grow up, you have nothing to say, youre not a shareholder, you bear none of the risk, you have no capital at stake, you are nothing more than a tool, an industrial prostitute. same goes for law associates, engineers, and even PE/ibanking associates. we have no union protection, and are employed at-will. its the name of the game. remember, we can always say “I quit” at anytime as well.”

Again, you make some good points, but they are points contrary to what the firms want their employees to believe. The partners can decide how much they will make (though not every partner has an equal voice in that decision; it’s probably more correct to say that the firm belongs to senior leadership). We can debate how much “at risk” the average partner is … absent a cataclysmic Andersen-like implosion, not so much, is my guess. In particular, partners who’ve met the minimum retirement funding requirements can bail at any time, right? I know of one senior partner whose retirement annuity was set to pay him $350,000 per year, for the rest of his life. How risky was that partner’s situation?

With respect to your point about lack of union protection, I’ve posted before (more than once) that white-collar aerospace engineers have unionized and engage in collective bargaining, so there is nothing stopping accounting staff from following the same path … nothing except for name-calling such as “… socialist banter, collectivist drivel …” which tends to inhibit people from taking action that might improve their situation. Such name-calling does not really rise to any kind of cogent argument level, does it? But again, creating conservative Republicans is in the firms’ best interest, since the benefits of doing so accrue to the partners (but not especially to the staff). So it’s not surprising that those are the talking points used to inhibit folks from exploring options other than having their compensation set for them by a patriarchal partnership, a benevolent group of dictators that really knows what’s best for everyone ….

Another point you get wrong is the nonsense about “employment at-will” — which operates to protect the firms (as well as other businesses). Ever read your employment contract? Mine said that, while the firm could fire me at any time, I had to give two weeks notice before resigning. How was that “at-will”? Moreover, I have heard (many times, at more than one firm) that if I gave appropriate notice and didn’t resign during busy season, the firm would work to find me suitable employment with a client. (See discussion about patriarchal crap spoon-fed to the staff, above. The fact is, nobody really needs that assistance; anybody who has spent more than 2 years in the Big 4 can easily find employment on their own … if they have time to look.)

On a related note, which is more drivel-like, the message that the firm will take care of you and do what’s right, don’t worry or think too hard about what’s going on — or the message that you as an individual have little or no power in the firm, and only by grouping together do you have any chance of affecting things without cratering your career?

“A man alone is easy prey.” — Pale Rider

Finally, re: your point about “As long as the firm continues to provide quality audits (a service, I have realized is actually pretty easily accomplished, no need for rocket-science, no need for too much advanced mathematical formulae, and no need for a 7 person rather than a 6 person team if things get tight) to its customer, then the firm has satisfied its legal/ethical duties in the marketplace.” That’s just nonsense. Did you not read Fran’s post? Did you not read the Supreme Court’s decision in Arthur Young? Again, that’s what the firms want you to believe, but court decisions say (rather emphatically) otherwise. Go back and read the bit Fran posted above about “certifying” financial statements; think about the implications of the use of that particular term by SCOTUS.

Attorney’s advocate on behalf of their client, CPA’s advocate on behalf of the public and shareholders, its a big difference and that’s what the privelege points to.

“by your line of reasoning Attorneys perform a public function too as they are also licensed by the government” that wasn’t my line of reasoning, please take some logic courses. I agreed with the senitments that the license gives us a monopolistic privelege and that ultimately we serve a public function. The goverment is basically telling the companies “Hey every year you need an audit and it can only be done by CPA’s”. CPA’s then compete with each other to try to get business, not lose clients, make a profit and hopefully somewhere in there help investors. They are also a big voice at the table that sets up the very standards that they try to enforce and ultimately make a profit on. If you can’t see inherent flaws in the set up, then you maybe still be loopy from all the kool-aid they fed you at the recruiting events.

It’s not about socialism or capitalism, it’s about being honest. If you’re a profit hungry machine that has a greater staff turnover than double double’s at a weight watchers convention, then at least be a bit honest to your staff. Don’t tell them they are poor performers when they are getting laid off, just say that the partner needs a new yacht and your salary will just about cover the downpayment (maybe he’ll name it after you). At the firm I worked at, they let a bunch of people go and then sent out an email saying everyone was going to work more hours in the week and that you had to take mandatory PTO. They then couched it in language like “this is for your benefit so you can get a “jumpstart” on planning” and “take some needed time off and enjoy it with the family”.

Just tell me that we’re downsizing and need the people left to do the work and we’re increasing the work hours to keep pace with profits. Just be honest.

‘I agreed with the senitments that the license gives us a monopolistic privelege and that ultimately we serve a public function. The goverment is basically telling the companies “Hey every year you need an audit and it can only be done by CPA’s”. ‘

Just take ‘audit’ and replace with any number of corporate legal issues. then take ‘CPA’ and replace with Attorney and magically its the same thing. You should really read a wikipedia article or two on corporate law friend. You really do not have any idea what you are talking about. The only difference between an accoutning firm and a law firm is there are only really 4 accounting firms worth mentioning (more realistically 3) and a million law firms. Also, attorneys get paid more than you faster.

Again you fail to see the big difference, bub, and that’s that the attorney (generally speaking) is acting on behalf of the client and is paid by the client. CPA’s/Auditors are acting on behalf of the public and are paid by the client. Let me know when you run acrooss an attorney that’s acting on behalf of the public but getting paid by the person/corporation he’s prosecuting. Compliance advice and counsel is different than investigating and opining on a company’s records.

I’m very impressed by your references to making more money than me as an attorney…overcompensating are we?

Please get down from your high horse, it must be difficult to breathe from up there.

#26:
While attorneys in theory act for corporations, as a practical matter they do not. Attorneys act for corporate managements. To the extent corporate management’s interests are not the same as their shareholders, attorneys have the same “classical agency” problem CPAs do.
I have read the Arthur Young decision many times. For my money, the Supreme Court, Congress and the Presidency have done nothing effective to improve the audit quality since the 1977 1760-page green book which Congress prepared on the the then Big Eight. Francine hits on the problem: corporations hire their CPAs. While Francine may exhort CPA firms to better behavior, I say such exhortations are a waste of words. To see the answer, I refer you to 10 Harvard Law Review 457, “The Path of the Law”, 1897, Holmes, Oliver Wendell. Page 461 has his famous “Bad Man” story. Read it. The only thing we can do to improve audit quality is:raise the cost of bad audits relative to good ones. All ethics classes, corporate governance changes, AICPA pronouncements, PCAOB acts, SEC enforcement actions will accompliish nothing if they do not RAISE THE COST OF BAD AUDITS RELATIVE TO GOOD ONES!

Sometimes attorneys act for the “corporation” when they are conducting an internal investigation. Many executives get confused when the in-house counsel or the outside attorney hired by the Board of Directors comes around and starts asking questions. They believe that attorney-client privilege exists. It does not. If you are ever going to be questioned as part of a serious internal investigation, best to get your own attorney, one that you pay. Then again, the organization sometimes has an obligation to pay your attorney fees, like in the KPMG Tax Shelter case with their partners. When KPMG refused to pay those partners legal fees to defend themselves, the case against them was eventually thrown out because they were denied due process.

I think the message is, yes there are agency problems and most people/professions may have to deal with them to some degree. The problem here is that Auditors have third party users and people that would rely on the financial statements as individuals that they would be responsible to along with the supposed bedrock of independence, which makes their issue that much more acute.

It is good to question all those things you mention. But in the end there are a few factors that will always hold true. First, supply and demand will have the biggest impact on your salary. Management knows that when there is great demand for your skills and not enough supply, you have the power and can demand the pay/benefits or simply go to another firm. Right now they have the power as there is more supply and less demand. That pendulum swings throughout your lifetime. In the 1990s the employees had the power, but now the employers do. Complaining at this point won’t change that, and I’m sure you will forget to be thankful when the pendulum swings the other way… but I hope maybe you will try to be appreciative and fair with the recruiting process and with your employer when you have the power, just like you are expecting them to be fair with you now.

As for your skepticism about the review process… I am pretty confident that you have never participated in that process. Truth is, the process is generally biased to favor the employee. Companies and individuals are reluctant to be negative about their employees and fearful of law suits if they do not go above and beyond to be sure they gave the employee the best opportunities possible to prove themselves. In general employees are not fair in their self-evaluations. They rate themselves unrealistically high and see almost no flaws in themselves. Few young employees are particularly self-aware, and even those that are self-aware play the game of trying to cover up their weaknesses (or finger point to others) rather than own up to their personal realities and work to improve. Management does not expect a perfect employee — they want people who are trying to improve and able to see where and how to do that. Much of this is human nature that is true at all firms — and has little to do with the B4. It isn’t perfect, there are abusers… there are managers who seek to fire someone. I myself have rated one or two people so poorly and recommended termination — and seen it happen. But before it happened, those people were transitioned to work with at least 3-4 other managers to see if they found a home with a different manager or if my rating was inaccurate. Manager opinions are tested and not accepted as gospel.

It is hard to trust in processes shrouded in secrecy. There is some truth to a need for secrecy — to protect you as much as anything else. But, I suggest you look at the performance review process as a process that serves you. You will get out of it what you put into it. If you play the paint a rosy picture and blame others for everything game — you will get little out of it. If you look inward and really become self-aware… that will benefit you. I have been fortunate to have managers who I have trusted (rarely has that trust been misguided) – but when I haven’t trusted the reviewer I have continued to be honest with myself and protected myself by doumenting less. But in this world, sometimes you have to be willing to be vulnerable. Sometimes you trust in the wrong people — but mostly people are inherently good people. You will benefit more by taking a leap of faith from time to time. And certainly question it all — a good manager will mentor you through those questions. They may not be able to tell you everything, particularly if it is about someone else’s review… but they can explain the process and the reasoning and so forth.

As for at-will employment. I believe that by law you can walk out without the 2 week notice. 2 week notice is simply a standard curtesy – mostly it means I will work for you for 2 weeks, but in that time I will do very little and take long lunches and go home early and you will just pay me in hopes that maybe I will transition some work if I feel nice enough to help you out. But while the company can terminate you at any time, they generally pay you a minimum of 2 weeks pay (this may also be by law – I am not sure) when they do that… so it goes both ways. Generally when a person is terminated, the firm pays out quite a bit — 2 weeks regular pay, accrued vacation pay, severence pay to name some of it.

Oh yes – name calling… I suggest you practice what you preach. Enough said.

Question? Having a CPA license and being able to conduct audits is a rare skill. It’s hard for people to go through at get 150 hours of education (which is required to take a CPA exam in most states) and pass this exam, this almost always requires a masters degree and a long term committment to the profession. Why do auditors, specifically licensed CPAs of these Big 4 and mid tier firms not UNIONIZE? Electricians unionzie because their skills and trade are rare. Accountants should not have their skills be ignored because some large firm wants to make some petty quota. Sometimes a large professional industry has to eat cost for a prolonged period of time to keep their employees. When the market turns back around, it’s not like you can easily find 100’s of CPAs at the local job fair. So once again, why is the Big 4 firms LICENSED employees Unionized???

this is pure bull.I workedfor D&T and have been in many concensus meeting,tell the truth- it is a place where most people go say nice things about their buddies and ding those they don’t like or who are not a part of their clique.It is OK to drink the d-kool aid and to be a cheerleader for the firm,but please don’t lie !!!

Dude – whats the point you are making? Let me see.. are your views shared by the Big 4?

Paragraph 1 – employers dont care about you as much – employees are at their mercy and compensation – when there is demand, we will take care of you, when not, we will throw you to the dogs on the street on your backside…where is the fairness?

Paragraph 2 – review process biased towards employee? people being reluctant to be negative about employees? why dont you let everyone know what firm you work for and have them weigh in if thats true? truth is something else. what the partner or their cronies wants, they get…

Paragraph 4 – there is need for secrecy to avoid lawsuits? – that itself shows that you are doing things which you dont want people to know – truth and fairness will not beget you any lawsuits – secrecy, ganging up and being unfair on people, giving false reasons for firing or laying off someone will most definitely get you some…so you need to shroud it in secrecy… practice what you preach – why dont you take a leap of faith for a change?

Paragraph 5 – Finally, something that made average sense….

I dont know Tenacious, but he makes a lot of good points. Read his previous posts. Enough said.

Working in Audit is like buying a car, people will swear by the ones that did them good personally. In the case of Audit, people will be a mirror of their experiences and what they’ve seen. Some have seen more than others, and thus their perspective is wider and more encompassing. In some cases people have been completely shafted by the system (I know of some) and in others they’ve met decent people and managed to do ok. I personally think Francine has seen a lot and has a candid (albeit a little forthright) viewpoint on the profession and I believe she has the contacts that give her perspective a decent scope. To disregard it completely would be dismissive obstinence.

I personally feel there’s a lot of things that need to be fixed about audit, both in the way that firms conduct business internally and externally and it would be wise for the powers that be to step back and be a little introspective (similar to the expectation of staff).

1. “As for your skepticism about the review process… I am pretty confident that you have never participated in that process. Truth is, the process is generally biased to favor the employee.” Wrong. Many times wrong. Been there, done that, at more than one “Big 4″ firm. From more than one perspective. Your “truth” is wrong as well. In point of fact, the process is biased to favor employees who have connections to senior partner/mentors/coaches who have a strong, influential voice in the review/ranking process. Employees who have no advocate at the table, suffer in comparison to those who do.

2. “Management does not expect a perfect employee …” Wrong again. While trends are important to the relative ranking, the way to success in the Big 4 is to fail at nothing; and consequently you do not need to excel at anything. First, be average or better in every possible area, from independence and training compliance to utilization to knowledge management to engagement feedback. After that, if you are good at something or have some above average characteristics, then that moves you up a bit. The reason for this is that the review/ranking process starts with the negatives, weeding out people based on whatever negative characteristics or attributes are discovered. Once the “low performers” have been identified, only then do the positive attributes work to move people up in the rankings. This is just human nature, especially in the Big 4, since it’s easier to identify a negative and move people down, than it is to identify a possibly intangible positive to move people up.

3. “It is hard to trust in processes shrouded in secrecy. There is some truth to a need for secrecy — to protect you as much as anything else. But, I suggest you look at the performance review process as a process that serves you. You will get out of it what you put into it.” Pardon me, but you are spouting the same paternalistic crap that the firms do — “trust us” they cry, “we have your best interests at heart” — knowing all the while that the trust is completely unwarranted. (Read my prior post again, please.) Also, the part about protecting “me” (or us)? Completely untrue. Anybody who’s been through the process understands that the primary objective is to PROTECT THE FIRM from employment-related lawsuits. Protecting the employees (from what? I ask you) does not enter into the equation in any sense.

4. Re: notice. There is a difference between a courtesy, and a contract clause that can be breached and thus create a cause of action. As for “accrued vacation pay” and “severance pay” those are payments mandated either by law or by firm policy/practice. The firm does “me” no favors when I receive such mandatory payments, and thus I owe no the firm no gratitude for making them.

5. Name calling. I’ve done none of that, simply pointed out bull poo-poo when somebody tried to pawn it off as gold. I.e., my argument is with your argument, not with you or any label of you.

But perhaps others can chime in here, to set one or the other of us straight?

I have to agree they can be biased. I’ve been in difficult situations and was told be someone not to worry because they were the one who would be involved in the review process. Granted, the other person not involved in the review process is an incompetent moron, but as review processes are underway, I feel a little better that I will have an advocate. That doesn’t mean I will be a superstar – that just means I am not “as” worried about losing my job.

@TT– have you ever been part of the review process? Have you ever had to give a review? Have you ever delivered a good review or a bad review to someone? Unless you can say you have done these things I don’t think you can really talk about it in the inflammatory language that you like to use. Based on your comments I offer the following advice – which I know you do not want, but maybe someone else on the post will gain something from it.

Building your career is about building your relationships with people — both within and outside of your practice and firm. It is also about building your skills which includes the skills required to execute an engagement and the soft skills of facilitating a team, managing a client, working with others, and so much more. You do need to build positive relationships and if you cannot do that or haven’t done it then you are correct that you will not have an advocate (eventually you need many advocates). But that is something you can fix. The way to fix it is to find someone you an trust and share with them — so that you can explore yourself and become more self aware. Getting ahead in your career is not something that will happen by sitting at your desk, waiting for work to come to you and performing it well (even perfectly). To get ahead you need to push yourself to grow, and the review process is a time to reflect on that and be honest with yourself. Being smart will not get you to the top, being smart is only ONE part of what you need to be to get to the top.

I understand that you feel this is spouting a bunch of bull. But I have experienced it from both ends. I have received good and bad reviews, and given good and bad reviews. I have provided feedback on employees, participated in all day review meetings, and been shut out of those meetings as well. I have fired people, counseled people out, hired people, trained people, held on to people in my team that I don’t want to lose, and suggested others find a different team. I haven’t done any of these things just once — for I have 30+ years of experience in many industries from academia to defense contracting to government to consulting to IT to the B4. I have heard all the things you are saying… and they are full of the type of emotions that generally come from someone who hasn’t taken the time to look inward but wants to look out at others and blame them for all the problems. I have done that myself, and sometimes it is warranted. But most times it is not warranted. In the end, the only part of this equation you have control over is yourself. That isn’t fun to realize – I hate it myself – but it is true. If you choose to handle it all in the manners that your language implies – I promise you that you will not succeed… anywhere.

Unless and until you find yourself sitting down to give someone a negative review you will never understand how hard that is to do and how people work so hard not to do it. The real disservice you will get in your life is when the manager avoids telling you all sides of the story — including the negatives. Because if there are no negatives then you cannot grow and improve. I recommend you listen to @31 just a little bit harder.

I agree with your comments about self-evaluations. It would be interesting to take an employee survey. Employees could be asked to indicate if they believed their performance was in the bottom 10% or the top 10% of their peers. I suspect that we would have five to ten times as many employees in the top group as compared to the bottom group.

Managers and Partners often find it difficult to prepare difficult candid evaluations as everyone likes to be liked. Managers and Partners will sometimes choose the path of least resistance by preparing a “meeting expectations” evaluation for a non-performing employee and just never schedule the employee on another job. This is not fair to the employee or the firm as the employee ends up frustrated, under-utilized and without the necessary information to improve their performance.

I want to talk about the review process too. This is an open secret in our group at Deloitte. One year, partners were discussing performance of a senior manager in an evaluation meeting. He was considered as an average payer and got 3 (1 is best and 5 is worst) on all his evaluations. So all the partners in the meeting agreed on his rating as 3 overall. But before the meeting was over, a senior partner walked in, and claimed that senior manager should be 1. Needless to say, everyone in the meeting just sat there and no one wanted to dispute with the senior partner. And that was, the guy was changed from an average player to a super star…

What does this story tell staff in the firm? Working hard is not important, doing a good audit is not important. As long as you have good relationship with a senior partners, that all matters…

@40 – it is possible that that team and that senior partner are corrupting the process. It is also possible that the average rating was based on incomplete information. Know that the review process is on-going at all times. It doesn’t take place only in a single meeting. Management starts rating each person that reports to them starting the first day of the performance year… they talk to each other all the time (just like staff talk about the managers). So I suggest you don’t junp to a conclusion at all — not unless it is worth taking the time to dig out all the facts. You may have only part of the picture. Don’t get me wrong — I am not saying what happened was right… just that you probably don’t know enough to tell.

Welcome to the real world. It’s not what you know, it’s who you know. This is the same in any organization. Corporation, School, Organization, Politics, Non-profit organizations. Anywhere! Remember when everyone was encouraged to “network” to get your foot in the door at your Big4? It’s the same thing, it’s not what you knew that got you there, it was who you knew. It’s no different once you actually start.

I think the guy that is talking about Uninoization is on to something. Why don’t big 4 auditors unionize? I have friends that are aerospace engineers who are union. But in reality, the vast majority of big 4 employers drink the kool aid and think their firm is so incredible and no matter what, it’s not leaderships fault if the firm does bad, it’s theirs.

@41 – same thing happened in my office. A discussion took place about an above-average performer in our group, who had just returned from a stint in another office. Having worked with this individual, I have first hand knowledge that this individual was an above-average performer, with at best a 2 ranking, and the comments from others seem to support my conclusion. This individual’s ptr coach pops in to the evaluation meeting (not having listened to any of the other PDM comments) and announces that this person has always been ranked a 1 while with the firm and should still be ranked a 1. As others can attest, 1’s are never given out, and this person was not that good. They gave this person a 1. A few years later, after this ptr coach fell out of favor, this individuals ranking began to drop and more accurately reflect performance. Who knows? This year, they may give this person a 3. The whole process is a joke. This is the way that Deloitte operates, and if you want to work there and be successful, you have to be willing to play the game. So many more stories … but so little time …

I have to admit – I do not work for D&T… a different B4. But whenever I have interfaced with D&T at training, conferences, even work assignments… I have never been impressed with the culture. I cannot attest to the review process or the quality of work or the partner greed there… I can just say it is not my experience in my practice. Maybe those that hate the D&T culture need to look at a different firm – but you may have to wait for the economy to improve. This is an unfair judgement – but it seemed to me the D&T employees were stuck up, arrogant, ultra-conservative competitors that will backstab and climb the ladder by putting others down. The real way to climb the ladder is to build people up — then you all march forward as a team. I have seen this work in a B4.

@15
I said :”Break up the big 4 if you want but don’t berate them for acting in their own self interests. Self interests. Isn’t this another principle of capitalism?”

So you said: “Oh my goodness, this puts the icing on the cake!! Please retake a remedial course in economics when you get the chance, please! First off, you are correct. Capitalism does offers incentive…reward for the organization who perform well. But tying in self-interests in the concept of capitalism? Self-interests….the reasons for many wrongdoings…”

So I need a remedial course in econ to learn that self interests has nothing to do with capitalism? I think someone needs to go back to 8th grade and have the school teacher re teach Adam Smith’s concept of the Invisible Hand. THE only reason why capitalism is successful is because of people acting in their own interests. Are they going to act in the interests of the people as a whole or that of the government? Clearly not or we would all be living in a wonderful socialist utopia which you seem to be stuck in. This is the real world, its sometimes harsh, but the sooner you get over it, the more prepared you will be to come back to reality.

Unionizing is an interesting thought. There was a time and place for a union. It still exists in some places and occupations. But be careful what you wish for. Unions have many downsides. If the business environment can manage to provide jobs in a non-abusive manner… the idea of union is not needed and often harmful. The question is what is abusive. I do not think adults working hard for good pay is abusive. If you come out of college and make $50K — that is pretty good. Do you have to put in extra time during busy season or when deadlines arise — certainly. Can you take a long lunch when these things are not true, work from home when your child is ill, or get some free food on the firm — yes. Pay attention to the pros as well as the cons of a job. I do not see abuse of staff. The risk of unionization is too great. Enough of our work is being off-shored in this country, there are plenty of people who will work for less. Unions are part of the problem that caused this economic situation (consider GM). They are not the entire problem, but they contributed. You don’t get anything for free in life — unions try to make that happen… employees get all the upside and none of the downside of working. But then again, in a union performance review would be based solely on years of service, maybe certifications — not on performance. This promotes mediocrity.

@32 and 43. Getting a CPA is not that difficult. Also keep in mind, in regards to your comment about the CPA being rare and requiring committment to the profession: even with states going to the 150 hr rule, they don’t actually require a masters in accountancy. Most states require the same classes they did when it only took 120 hours. So you can knock off the required classes during undergrad and then take whatever you want for grad school. Hell you could get a masters is basket weaving and it would meet the requirements. That doesn’t really require a “long term committment to the profession.”

The other factor is most people see the Big 4 firms as a means to an end. You go in for 2 years, get your experience for the CPA, get out with a CPA and a good name on your resume. For those employees (the vast majority) I don’t see the appeal of a union.

Who is the client? FM is correct to point out that there is an inherent conflict in that the shareholders are the people being served yet the person doing the hiring and paying is the company being audited. This isn’t optimal for sure. But the only solutions I have heard are:

1) turn it over to a gov’t agency — in my opinion this is not wise. The gov’t generally does not provide top quality work, and is as or more prone to corruption.
2) create more audit firms only smaller ones so there is more competition — this doesn’t solve the problem, you still aren’t getting paid by the shareholders

well – I really haven’t seen any other thoughts here. It seems the only thing to talk about is whether to regulate by a gov’t organization or how to put the ethics and integrity back in the organizations if and where it is currently lacking. I guess that may be why the thread gravitates in that direction.

I think the way to put the ethics and integrity back in the firms is to start with the young people. But they are so stuck being bitter and are not ready to be constructive, that I am not sure anything will change for a while. It is not about revolution but evolution — it the way to make true and lasting change in the world. OK – there have been some revolutions that were very successful — I know… don’t get on me for that. I do believe more in evolution – maybe in a series of tiny revolts.

(There are so many anonymous posters that it’s hard to know whether I’m responding to one or a dozen people. Folks, pick a name and go with it.)

@ 38 —

“@TT– have you ever been part of the review process? Have you ever had to give a review? Have you ever delivered a good review or a bad review to someone? Unless you can say you have done these things I don’t think you can really talk about it in the inflammatory language that you like to use. Based on your comments I offer the following advice – which I know you do not want, but maybe someone else on the post will gain something from it.”

Dude, whomever you are, did you not actually read my post, the one that contained the “been there, done that” part? Let me be clear, I have given many upon many reviews in my career with the “Big 4″. I have given engagement feedback and taken engagement feedback. I have been a “file reviewer” several times and presented staff ranking recommendations to review committees, and defended those recommendations in the face of skepticism and probing questions. I have mentored and coached and successfully gotten my folks promoted. My last senior associate had low utilization, a prior year ranking of not promotable, but a burning desire to make manager. He also had some excellent engagement feedback that testified as to his true abilities. We turned it around and got him promoted in one year.

How did we do it? Well we built us some relationships, is how. We went to key partners who ranked him the previous year and figured out what the issues/questions had been. We laid out an action plan and addressed those issues/questions, one by one, and made sure the partners got what they needed to see and hear. We went to key partners who were going to participate in the current year’s review process and (each of us) had a one-on-one with those partners. We identified each partner’s hot buttons and addressed them. I took partners to lunch and sometimes even paid out of my own pocket (didn’t run the expense through), so that I could plead my senior associate’s case. (By the way, the fundamental issue was that his relationship partners were in the wrong geography and didn’t participate in his market’s review process.) We got the partners talking to one another, confirming that our talking points were valid. We set up conference calls between certain partners, but didn’t participate in them. We met with influential senior managers and HR folks. We made the business case over and over. More importantly, we did a lot of listening to find out what the promote case needed to be, so that we could make it. And by the way, my senior associate “protege” wasn’t even in my market, or my practice, and I had no idea what he did for a living. But when his review came up at year-end, everybody knew who he was, and why he should be promoted, even though there were twice as many qualified senior-promotes as there were manager openings (based on the firm’s “leverage model”), so that there was only a 50/50 chance of a successful promote recommendation being approved.

I have given negative reviews. I gave a review that went up two levels of partner and up three levels of HR, obtaining concurrence at every level, which led to a senior associate being “separated” for poor performance. Did he agree with me? No way! In fact, we had to have the review over the phone because he wouldn’t meet with me to have an in-person discussion. But ultimately I did what was right and he got the feedback that everybody agreed he deserved to get (even if he didn’t agree). I’m grateful my engagement partner backed me up 100% because otherwise that one easily could have gone south.

I was a part of a team that led the redesign of a firm’s review process. Did I lead that team? Nope — it was a partner, not me. Did the firm accept our redesigned process? Nope — too much change (and it put too much burden on the staff coaches and mentors, I was told). But I studied the firm’s process in great detail and identified opportunities for improvement in transparency as well as opportunities for streamlining, so I know whereof I speak.

So please believe me when I say I have experience in the Big 4 review process. Agree with me or not, but don’t tell me I don’t know what I’m talking about.

I’m out of here unless somebody wants to discuss the issues instead of telling me I can’t have participated in the review process because I’m not proclaiming its perfection to the world.

So, so many stories. The whole thing is like watching how abusive, narcissistic parents treat each of their children differently. You can see in that sly, underhanded way that certain siblings are favored; despite poor skill or capabilities, they are given wish-list clients, locations, industries and more work to meet or exceed utilization hours. The (scape) goats are given a dry crumb or two, and told to feel blessed to be born, or in this case, lucky to be employed.

@TT – Thank you for a well delivered message. I now see that not only you have the experience, but you do it right. And for the record – I did read the post in detail, but was asking you questions about your experience because the language you used was unclear. The emotion and tone of it was easy to read in a completely different context. I “asked” if you have had these experiences, because I wasn’t sure. Your new post is all evidence of how the process does work. The things you have done are the right things and have helped some solid performers move further in their career, and probably personally as well. So I don’t understand why you are so upset about the review process.

My current suspicion is that the process isn’t so bad, but the people implementing it are — and is that the majority of the people or just a few? Or is it just the most influential people? If all the people in the process did the things you do (which by the way is what I do as well)… then would the process work? What stops people from behaving as you do throughout the process… and if you wrote up a new process (blessed by the firm) that told them to do it, would that change a thing?

Just so you know — I think you are D&T — I am not… so we aren’t talking about the exact same process.

@51 – think about what you have said. The review process has one purpose — to differentiate between the employees… who is top and who is bottom of the pile. By definition the process will not pat 100% of the people on the back 100% of the time. If everyone in the employee pool is a superstar, then the superstars not as good as the others will still be in the bottom. Unlike school — not everyone can get an A+ on the report card. It is about resources and where they will put those resources. Obviously the first resource to divide up is pay. But each manager has the resource of their time — so they will choose who they will invest their time in. That isn’t favoritism — it is selecting the team you believe in and wish to invest in. The only way it is favoritism is if the managers NEVER try fresh blood to see if there is someone else to invest in.

I’m here. Working on the next post and a few other things. And sleeping. And eating. And talking to friends.
I’m just a girl…

In the meantime, I’m thrilled with this discussion especially of the performance review process. I want to thank all of the commenters who have added their thoughts.

A while back I wrote a detailed description of the process at PwC. As you can imagine, I thought it sucked. In general, the automated process leaves a lot to be desired, is mainly a response to liability management, and an opportunity for partners to abdicate responsibility for their decisions and blame it on the committee. Makes it harder to claim discrimination by any particular jerk…

Print your engagement reviews and mid-term and year end project reviews and any feedback you receive via email. It’s too late when you’re let go and kicked off internal systems.

Keep the cards and letter coming. And I would chime in with Tenacious Truman. Set up a pseudonym, at least, and stick to it. Makes it so much easier (and so much more fun) to respond to ideas and thoughts directly, consistently, and to see threads over time. A real conversation.
(And add your email address. Helps me reach out to you. All is kept close to my vest/chest.)

To the guy that said the CPA is not hard, and starting at 50K for a masters degree is good is LOST. Come out with a masters of engineering, if a firm offered that student 50K they would laugh. Also, the CPA parts rest every 18 months so you have to be pretty dang competent to pass the exam. I know tons of associate/seniors that are not even close to passing the thing….so don’t say the CPA is easy, or that 50K starting with a master degree is good, because it’s not. The big 4, in my opinion, is TOO big, not allowing enough competitors, thus the salaries are way to low for the skills of the employees. This is why the big 4 is constantly being raided for their employees. They do not have long term committment to their people, they don’t care about quality fo audits (in my opinion), just making a large margin by paying competent employees low and charging outrageous fees.

55 -Does the process need a bell curve? What if everyone is more or less a superstar – a bunch of greats, very goods, goods, satisfactories and no “needs improvements?” Is the review process looking to define “black sheep” so that there is a real bell curve?

And how reliable is this process? How does a staff rely on a review where the manager pressured the senior into giving a staff a poor review, under threat of “failure to follow direction,” and the senior obliged? What about reviews from managers and senior managers who are later professionally censured and/or criminally prosecuted? How reliable is a review from managers and senior managers who gang up on someone in the office by taking away work, shrinking hours, etc?

1. Please re-read my post #22. I hope I had more points, and more fundamental points, than simply one about how the employee review process sucks.

2. To those who posted that my story about working the system shows how the process works, or is supposed to work: I disagree. A proper review process free from bias and undue influence wouldn’t need me, or my senior associate, or you or your partner, to “work” the review partners in the way we were forced to. A proper review process would be resistant to such blatant influencing. A proper review process wouldn’t need “independent file reviewers” because the process itself would be independent and objective (to the extent possible given humans are involved). A proper review process wouldn’t exhibit the lack of transparency and obvious bias I’ve seen.

3. To those who think I work(ed) for D&T, or E&Y, or PwC, or KPMG, maybe not. I’ve worked for several of the Big 4 firms and, believe me, they are pretty much all the same. I know the review process at several firms, and had detailed “benchmarking” discussions with folks who came from the other firm(s) I didn’t work at. No one firm does it particularly better than any other firm. The faults of one firm’s process are, more or less, the faults of the other firms.

4. Want to benchmark your firm against the “best in class” — benchmark against Andersen. As with most things Android, it was all about consistency. All managers and above (including partners) gathered in one opulent offsite location for an all-day (and/or all-night) review meeting. Every piece of feedback for an individual staff member for the period was displayed for all to see (via in-focus projector). All the rankings were examined against each other for consistency. If YOUR piece of feedback about that employee was different from the other feedback (e.g., you ranked the person as a 1 while the others ranked her a 3) — then YOU were called up in front of the group to defend your feedback and ranking. If you failed to defend your position, the fact that you couldn’t be trusted to give accurate feedback was noted for YOUR review, and factored into your ranking. When everybody in the room agreed that the feedback was accurate, then a consensus ranking was obvious and the process moved on. That kept the process honest, or as honest as it could be, given that it was biased against experienced hires. (Not just my opinion, see Toffler’s book.)

@60 – it is NOT possible to have everyone as a superstar. If that is the case, the review standard is too low. That is the nature of business. But it isn’t a bell curve either. At least at my firm, the needs improvements are rare. I have been here over 7 years and to my knowledge the needs improvement has happened about 3 times, and there have been way more than 3 people who have needed vast improvement (also my opinion – but validated by many people of many titles). Those other people are given the benefit of the doubt and coached along until either they succeed or they leave the firm. Your examples of what can happen with negative reviews has never once occured in my 7+ years at KPMG, nor in my 30+ years working… in my personal experience. I’m sure it has happened elsewhere.

I have recently had a case where you could argue it was potentially going to happen. Let’s call the players, director, manager and staff. The staff member started out performing well on the job, but by the end the manager was very frustrated with his (for argument sake we’ll make all the people a he) performance. But the manager was unwilling to provide the feedback to him — in fact gave a glowing review at interim. The director took a long time to get wind of the problems (the director was out of the office for a long period of time). But once he got wind of it the negative feedback started to flow. My role — I am tasked to manage the staff members performance review process. So I spent at least 8 hours across several days talking to the director, manager, staff member, two partners, another director and others involved with the review process. I pushed on each an every person — was that the staff member’s fault or was he inappropriately coached, monitored, etc. I am not a partner or director — so I was arguing with people senior to me and telling them they had to provide specifics, and they had to evaluate their own participation in the process. In the end, this staff member has had a major growth experience.. and so have the managers, directors and partners. I have been praised by partners and directors for pushing back on them (not told I have to ding the staff member without questioning them) and being persistent and making the process fair. The staff member is getting a fair shake and while the review will not be glowing, he has recognized some things he didn’t do well – but more importantly he has recognized ways he can avoid this in the future and ways he could have and will perform better. He has a list of behaviors he intends to correct and how he intends to correct not only himself but the perceptions of others when the perceptions are inaccurate. The dialogue has begun with his manager and director. He is very appreciative for the review process. I have many more hours to spend before this is ironed out – but it was worth the investment.

So, as far as reliability — the process is reliable if you actively engage in it and you find supporters to be actively engaged. I am assigned to this responsibility (and NOT, I am NOT HR), but the staff member could select a different person if I was not meeting his needs. OK – there are only limited people he can select from – but I am not the only choice. So, you need to be honest, fair and engaged in the process yourself, and you need to have people to support you and advocate on your behalf. Advocacy does not mean they say you are a superstar – it means they are fair and honest and engaged in the process and doing what is best for you. In this case what was best was to deliver the negative feedback and help him work through what it means and how to work with it going forward. Also note, if you are never told that you have things to improve upon, you will never get better. All reviews should include some element of growth areas.

As for the bell curve — generally, most people are in the middle bucket as far as performance. You will have 5-10% superstars, and 1-2% needs improvement. But if you think you are a superstar every year, I suggest you start being honest with yourself. It isn’t possible that all employees are superstars. If you grew up in the age when everyone got a trophy even if you were on the losing team — that simply isn’t the way the world works. I feel bad that you didn’t learn this when you were young, but it is time to grow up. Sometimes you lose. And in this world there are a lot more stupid people than there are superstars. Afterall, some people voted for ________________ (fill in the blank on which president you think is an idiot).

@TT – I know you are done… I agree it would be great to get bias out of the process… but I believe you are fighting human nature and not the review process. People are generally opinionated and biased — and while the world wants an objective and measurable review — that isn’t ever going to happen. It is about a process that involves advocacy and communication and debate and all these time consuming things. That debate is on-going… every day you are in the office (not just at review time). I commend your intention (yes I am @54)… I am not sure you can achieve the goal without the advocacy and effort you described in your earlier post. My reason — because we are all people but more important each of us has a personal agenda that is first above all else – and sometimes the advocates need to challenge others to put their personal agendas aside for a moment..

While the KPMG process for my practice isn’t exactly like what you described for Andersen — it is pretty close.

To the person who said that so “you work a little bit longer during busy season” let’s not get caught up on the negative or something like that. I would like to know what company you work for and what group your in. In my opinion, taking a 2 hr lunch does not make up for working 80hrs a week for 5 weeks straight which i just did. Things are changing in firms, you don’t have the summer “off” like it used to be. Hell, if you’re unassigned during the summer nowadays ppl are having heart attacks b/c they are afraid of their utilization. Saying hey, you worked hard for the last 3 months and didnt even get to see your family, so why don’t you take friday off does NOT, I repeat, does NOT makes up for the extra hours you put in. Do you think if they compensated accordingly (ie) overtime, they would ask these hours of you? Calculating my per hour paycheck for busy season, it came to $11 and hour. and NO, it doesn’t average out over the year because now I’m back to working “standard hours” which btw pwc has somehow increased to 50. Pharmacists that work double shifts and thus have these kind of hours get to take a week off after each week of working a double shifts. IF we got summer of AT FULL PAY and not the measly 20% they are forcing audit ppl to take, then I could be like, hey, that’s just the way the business works.
Work at home and all that jazz, please, i’d like to see anyone under a manager that is allowed to do that. Considering it takes about 5 years to make it to manager, i think it’s just good PR. PWC sent out an email in NY basically saying, you need to be in the office even if you are unassigned. I could go on.

Anyway, since we are talking about review process, news from boston is that it’s changed once again. There is no longer a 4 rating. You are going to be wither 1 – exceptional, 2- average or 3 – underperforming. They said in not so many words that the 3’s would be fired. I sense a round of layoffs coming after this ARC process although obviously they will say they are getting rid of the under performers. It’s amazing, if you are not exceptional then you are average……

8:00 am – all partners/senior managers/managers sat in a big conference room. The process starts with each counselor going over the evaluations of their counselees. The responsibility of counselors was to summarize his/her counselee’s evaluations and suggested an overall rating for his/her counselee. If any partner/senior manager/manager has worked with the staff/senior, he/she jumped in and talked about his/hers strengths and development needs. This part of the process was smooth and peaceful.

10:00 am – after the first round of discussion, all staff/seniors were assigned an overall rating from on a scale of 1-5 (1 being “outstanding” and 5 being “poor”). An HR partner or representative did the stats, and announced: “there are a total of 100 staff/seniors, 15 of them are 1, 30 of them are 2, and 50 of them are 3, and 5 of them are 4. This is good, however, based on the firm’s standard or average, we would like to see less than 5 % of 1, 10% of 2 and the majority of them should be 3. Let’s go over each 1 and 2 and make sure they are really 1 and 2.” So here we go. Put your boxing gloves on everyone because the fun part starts now… Partners/senior managers/managers started attacking the staff/seniors who they never worked with, and you would hear comments like:

– ABC once went out and did a 2 hours lunch.
– DEF did not iron his shirt last Saturday.
– XYZ did something 3 years ago and the client did not like it. [Does the term “period under review” mean anything to you? You’re an auditor!]
– I don’t understand why GTH can be a 2, because compare to JUK I worked with, GTH can only be a 3, even I though never worked with GTH before
– XXX was the last one to return my emails.
– UJI did not do any extra-curricular activities outside the firm so I don’t think he deserves a 1, unlike TFR.
– Hard working should not be the criteria here, because everyone was working hard.
– His utilization is 125% so maybe he needs to work on his work-life balance. We want our staff to work smart, not hard.
– It is ok we give him/her a 3 even though all his/her evaluations received were all 2s. [Note: a month later one of such case was let go from the firm…]
– She took 3 months medical leave so I don’t think we can give him a 2 for her performance throughout the year.
– I never worked with FRT before, but whenever I saw him in the office, he did not seem to know what he was doing. He maybe very good, but I just don’t think he is a 2.
– It is ok to bring down his rating to 3 this year because it will push him to work harder next year and we will be able to show that he made progress during the next round.

4 pm – The HR partner/personnel redid the stats and announced: “now we have 5 people with a rating of 1, 10 people 2, 80 people 3, and 5 people 4. It looks better. However, based on what I just heard, I want to challenge some of 3s here. They sound like 4 to me. Let’s go over some of them”. And here we go again. It’s boxing gloves on again and back in the ring. Anything goes.

6 pm – The HR partner/personal redid the stats and announced: “We have 5 people 1, 10 people 2, 75 people 3, and 10 people 4. I think we are being very fair to all our staff. Thank you everyone. We did an excellent job today.”

————————–
Two more things:

1) Last year, almost 80% of partners were rated 1 or 2.
2) The year end evaluation will be held next month. Good luck to all the Deloitte soldiers. Keep on marching because your leaders really know what they want and know what is best for you…

Some things come with age… experience counts for something and it is real and tangible and valuable. There are things that cannot be taught – that you simply have to live through. Don’t expect all things to come to you right away, you have to earn it.

Those 3 negative review scenarios I’ve described, I’ve seen or personally experienced at least half, and occurred within less than 10% of your entire working experience.

The review process you’ve illustrated was not available to me or others. From what I experienced, there was no person to “push back,” to investigate, or ask me or others what happened. It wasn’t uncommon for the manager/sr mgr to be in the back pocket of the partner.

@ 70 – what a slam! So true too. I have worked for some sleezy AA partners, and in my opinion, it was good thing that the firm went down. However, most of them just went to another big 4 (like Deloitte) and kept doing what they were doing before.

@fm – let us know what you find out. Maybe you can have him do a guest post on your blog. How interesting that he is a professor at the University of Texas. The Enron/Anderson scandal occurred in Texas (Bush country), and the University of Texas has one of the top accounting programs in the country and is a huge feeder to the Texas accounting firms. Perhaps it explains why he posted his blog on the Santa Clara site (where it appears that he is a visiting professor).

Anon @ 66 — yes, that is the most common experience throughout the firms, and certainly is NOT confined to Deloitte.

You have accurately described what I have experienced over and over. Note the focus on negative attributes, and the ability of influential people in the room to sway the performance ranking. Anybody who does not have a strong advocate in the process is going to suffer. More than half the battle is (a) identifying your advocate, (b) identifying what taling points need to be advocated, and (c) prepping the advocate, including firing-up the advocate to get enthusiastic on your behalf and sticking to the talking points during the boxing matches in the room.

Again: the firms need to learn that assigning somebody a three who has received straight ‘2’s’, or denying somebody a promotion who has met all the written criteria for promotion, simply hands the plaintiffs’ attorneys a very nice smoking gun. Any attorney worth his/her salt should just get somebody like you or me, or countless others, on the witness stand (under oath) and ask us to describe the performance review process from start to finish, just as you did in your post.

Do some discovery and show that the final ranking had no logical relationship to the underlying performance information. (Or to put it another way, show that the conclusion was not supported by evidence.) Obtain from HR the firmwide direction on the “expected” distribution of the rankings, and show the nice fit between the final outcomes and the expected distribution. Put a senior HR person on the stand and ask how the firmwide distribution was developed. Follow up and ask what happened to any market or practice that did not reasonably conform to the expected distribution.

In my opinion, it would be game over for the defendants. But then, I’m not an attorney, so what do I know?

@66 — the process is not at fault. If the people in the room are not constructive or on point then your grip is with the people and the criteria they are using. Further, the partner managing the meeting needs to allow some banter, but to really channel it in the right/constructive direction. Our process is similar, only the comments are not all negative and they are more constructive. I suggest you focus on the integrity of the people you are working with rather than blame the process itself.

As for review period — yes, in our process we sometimes look back further… in these cases it is to ask if the trend has improved or if the behaviors have continued. We also look forward — where do you envision this person sits in 5 years… is he/she a leader of the practice? While it is a review period, the slate is not wiped clean each year — and that is necessary to the process.

The focus on negative comments Tenacious mentions — again, that is about the people not the process. It is not what I experience. I experience a balance of positive and negative… and very few issues like what they wear to work and whether they brushed their teeth. I have had to deal with a body odor problem that was so bad co-workers were getting sick to their stomach. I talked to the staff member — the problem is fixed. It was relevant to review — because it was impacting performance. Managers were indicating they would not use this person because they could not be in proximity to him/her. Trust me — it was a major body odor problem.

@76, I stated what I observed. In my opinion, I would say that the meeting should be done in 2 hours. The first 2 hours was very constructive…

The rating system is tied directly to salary increase for the following year. For example, 1 rated would get 8% raise, 2 would get 6%, 3 would get 4% and 4 will get no raise. The whole purpose of an evaluation meeting is to make sure that the total amount of the raise = to firm’s budget. It is all about the money…

So, don’t be too serious about the review process. If you need constructive feedbacks, the partners or managers you worked with could communicate them to you directly. There is NO NEED for a stupid evaluation like this. Think about this, why would partners have a problem to rate all their staff 1 or 2 if this wasn’t about money…?

The evaluation meeting is just a show, and you are just a number. Good luck.

@70 – after AA went down KPMG hired many of their employees. At least in some practices KPMG realized that the AA people had little to no integrity, honesty and all that rot. Within a couple years, our practice sold off part of the group to a boutique. While not true nationwide — what this meant was simple… all the AA people left KPMG… we could not tolerate them and we kicked them out. They were slime — but I a monly speaking of the ones I worked with… it made me wonder if the AA culture was all slime though. KPMG/US employes around 20,000 people — there must be some slime in there too… just the law of averages. But is it a culture of slime? I am not so sure. If it is — that slime is in the audit practice IMHO.

@77-I agree that the process is about money, simply because there is only so much to divide up. I do not believe at KPMG the rating (which is based on a 9-box system (don’t ask me to explain – too convoluted) is used directly to compute the raise… and definitely not the promotion. While we use 9 ratings, they are categoized into 3 buckets – NI=needs improvement, SP=strong performer, EP=exceptional performer. As for the 9 thing — each of the 3 buckets has 3 sub-buckets kind of — to indicate if you are better at one thing over another. But for now – let’s consider only the 3 ratings. People who are SP can and do get promoted (it has happened to me and I know it has happened to several others). There is no requirement that you must be an EP to get promoted. I believe the salary decision is similar… although I must admit that this decision lies entirely within the office managing partner’s domain and maybe he/she discusses it nationally. But I believe that within each title, rating category etc, the partner ranks people. I believe my partner then looks at where each person’s salary is as compared to the rankings. Then I believe the next step is to say should person A make more or less than person B — which ultimately means that the ratings and such over time matter. And then the salaries are adjusted to put people more in-line with the ranking. So if person A is making a lot because historical performance reviews weren’t really on target — or say the salary at hire was higher than performance supports, and person B is low because of some other reason, the lower person may be an SP and get a larger raise than some other EP person who was in the range of where they should be anyway. In this way the salaries are adjusted in order to bring people in line with overall ranking rather than taking the salary they make as a given and adding an increase simply based on the rating. It allows for salary correction – not just salary increases without correcting over/under payed individuals.

Example, when you interview, you look good on paper. So they offer you a sr staff member position at $110K. After 1-2 years they realize you weren’t as good as you looked on that paper, but you are good. You will get SP ratings, maybe even EP and maybe even a promotion — but you will not get large raises until your rating and the salary are in allignment.

FYI – I am not intending any acusations – just comparing experiences and their merits. The more I hear from the D&T people, the more I believe that is not the B4 to work at (unless the people posting are simply a biased set). The culture seems to be flawed – and the people seem to be nasty. As for meeting length — we could not go through 40+ people in 2 hours. This year the meeting ran from 10am to after 7pm. But we also discuss things like how do we measure people, before we even start discussing people.

So for us — the ratings are definitely not the only factor that goes into raise/promote decisions.

AA people are slime! love that term..where do you think all the AA folks are now at? Deloitte – guess what about the culture then? i think you are smart to figure that one out right? lay off all AA folks and D will be a better place to be at….

@68 – this is @62… maybe I have just been lucky. I hope you can find a place where you do have that person to manage your career development. I do think that we can each do some things to make it happen for ourselves though. I have pushed back at my own manager/partner when he/she is not doing what i feel is right by me. In some cases I was being immature and they helped me to grow up, in other cases I was successful at getting them to see things differently.

A recent breakthrough for me in fact — one of our senior managers really doesn’t like me, and during the “big pow wow” each year this person gives me scathing reviews about pretty irrelevant things. But this year we have worked together (first year we have done that). At mid-year I really pushed back at this senior manager. Said things like I know you do not support me or respect me. But I offered that I wanted to remedy the situation and asked the senior manager to decide then and there if she wanted to make it work. Once I gained buy in that we were going to put the historical dislike and distrust behind us — we started working together really well. No – it isn’t perfect, but at least it is positive. And I have since learned that during the pow-wow, she actually supported me this year.

My advice — if you approach the discussion constructively you can push back at (even blast — and I did blast this senior manager — the language I used here was much softer than the real conversation). And you can succeed at that. You cannot do this all the time, and you have to have solutions to implement — and you have to deliver. But you can step up and do this for yourself at times.

81 – Thanks. Yeah, sometimes I wonder if it’s just my crazy luck, but I’ve managed to keep in touch with a colleague or two from every place. In my current place, it’s been sad and frustrating, b/c the few people who’ve been guiding or mentoring me, have either left or been let go (but that I’ve also kept in touch with) I haven’t been re-assigned to anybody, but have been cautiously tiptoeing around in this whack-a-mole environment. How much longer my current company can keep it together is also a big question, as business is not great.

Thanks – your situation sounds encouraging. I will keep this all in mind.

Thanks for putting your reply to my post in an actual article as I hadn’t planned on going back to check for any more replies.

You may be disgusted by my comments but you are confused. The point of any business is to make money and the Firms are no different. I still don’t see any real actionable items in your post for how to fix all of the alleged problems you proclaim there to be. I see a lot of long term vision for a Utopian world where no one gets laid off and partners work for free out of the goodness of there hearts but I don’t see much in your recommendations that has any real meat to it. Really you should probably go work on the Starship Enterprise in a world where everyone works for the betterment of mankind and there is no currency. The rest of us live in the real world where people want to make money.

I can only speak to the Firm that I work for when I say that I think our commitment to ethics far exceeds any company I have ever seen. It is part of the culture. It is in the approach to our work, the quality processes, the training, the emails, etc.. I don’t think we are perfect but I think we make less mistakes than most companies whether it be the audit findings or how we let people go or whatever the case may be.

So while I will agree with you that the Big4 like ALL companies and organizations should always strive to do better — I take offense to your general tone that would seem to indicate the Firms are all evil and the rest of the world is doing a much better job at what they do. If you took a look outside of these 4 companies and what they do in one specific industry you would realize things are not so bad. I would love to hear from you examples of companies or industries that you think are doing a really good job at what they do.

I am not confused. Whether you choose to acknowledge it or not, the Firms are absolutely different than “any other business.” They are regulated and have an obligation and responsibility, both legal and ethical, that extends beyond and supersedes the goal of their organization as a “business”. It is what it is. The problem is they have been allowed to forget that. For what purpose? So we can have them continue to produce worthless, non-actionable, valueless audit opinions?

Which firm do you work for? Name it and I can show you numerous recent examples for any of the top seven in the US that demonstrate disdain and disregard for both ethical and legal requirements. Try me.

You take offense? Quite a personal reaction for someone who chooses to be anonymous. I can only indulge that self-centered emotion to a certain extent.

I am still working on the next post in the series that will speak to the operational and business development issues and suggestions. But remember, it’s all done with an element of wishful thinking. The model itself is broken and what I might suggest are only band aids on a body with both broken arms and broken legs

In the meantime, so many other stories to keep up on. Today the Indian FBI issued a statement that the PwC auditors were complicit in the Satyam fraud. And the lawsuits against the others related to Madoff and other frauds keep getting filed. I have no chance of running out of things to write about.
Francine

@J — you are right… FM is very idealistic. She has points worth consideration, but I do not see any solutions. She points out the issues but doesn’t really have a solution. The only thing anyone seems to propose is having auditing be a gov’t responsibility.

You guys do know that there was a point in time when audit firms did focus on their primary customer — the shareholders, right? There is nothing idealistic in suggesting that the firms operate in the way it conducted business before – the right way…before self-interests got in the way of leaderships’ true purpose (ensuring the trust of the public). If you can come up with solutions of your own, we’d all like to know them (unless you think the failed partnership model is fine as is).

@87 – I haven’t come up with solutions on my own either. I merely suggest that this is idealistic and I’d like to see a solution oriented conversation rather than just complaining. I am not convinced that the existing model has completely failed. I wonder about the history you mention – and I admit that I have no knowledge in this area. But it makes no sense that people were better people back then, or was the model different? So, if as you suggest things were right in the past (as opposed to we are engaging in revisionist history – romanticizing the past as is commonly done). Then I suggest the way to the solution is to identify what changed. So I ask (don’t read any snotty tone of voice – I am honestly asking)… how were things right and what changed to make them wrong? If we can identify that then we can fix the future. And if I have missed something in the blogs – don’t yell at me to read something thoroughly… I have read a lot of these blogs and may have missed it, or maybe it was unclear due to all the emotion and anger and sarcasm and such that taints the discussion.

Why does it make no sense? Look at the crime committed today versus 10, 20, 30 years ago. Look at Sept 11th, the D.C. sniper, wipe out of the financial services industry. Someone said that the failure of AIG cost more than the whole S&L crisis.

“solution oriented conversation”

great word usage. are you saying that we should bury the problem, rather than understand what cause the problem? to understand the problem would be (in your eyes) complaining. But wait, has of the culprits actually admitted to a problem?

“emotion, anger, and sarcasm”

hmmm … yes, when we (the innocent) get raped, we’re emotional, angry and sarcastic. I would suppose that you would have us believe that the rapist is “solution oriented.”?

“I am not convinced that the existing model has completely failed.” What would it take to convince you that the existing model had completely failed?

Would it take legal settlement after legal settlement, with more (and bigger) litigation pending? Would it take audit partners jailed by more than one country? How about being prohibited from accepting new SEC audit clients for 6 months as a penalty for obvious independence violations? How about a senior leadership partner who (allegedly) not only violated independence standards, but actively participated in actual insider trading? How about abusive tax shelter sales? How about (alleged) spoliation of evidence during discovery proceedings?

Would it take demonstrably poor management decision-making, without any accountability whatsoever? Would it take a published analysis and conclusion by an independent party? How about a oligolopistic situation that quickly shrank — i.e., the size of the oligolopy shrank from 8 to 4 over a period of roughly 20 years, due at least in part to forced mergers and other litigation-related matters (e.g., Andersen)? What more, or other, evidence are you looking for?

Seriously, what evidentiary standard are you using? Because from my perspective, I cam completely convinced beyond a scintilla of doubt that the existing model has completely failed, and needs to be thrown out like yesterday’s bath water.

And for those of you who say that “I do not see any solutions” coming from Fran, that can only be because you are not reading the blog posts. She has posted at least one serious reform solution, in addition to this series of “what I’d do” posts.

From page 72: “In June 2002, just two months after Andersen was convicted … Harvey Kapnick died unexpectedly at age 77. His son commented about his father: ‘He had long believed that the dilution of standards at his beloved firm could be traced to the rise of auditor-salesmen and the poisoning effect its drive for profits had on Andersen’s famous independence.'”

See also “Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen” (Doubleday, 2004)

For instance this part: “In the end, it was all about the bucks. Yes, performance reviews included many factors, but no one paid attention to them. Either you brought in the money or you wouldn’t be around for too long. … The four cornerstones of success at Arthur Andersen — People, Management, Quality, Thought Leadership, and Financial Peformance — were referred to colloquially as ‘three pebbles and a boulder.’ The boulder was financial performance. The rest, it seemed, was a joke.” (page 195)

I could post more excerpts that would be exactly on point regarding your question, “what about Arthur Andersen [would be] an example of the existing business model that’s failed?” but instead I suggest you find either of those two books on Amazon, buy them, and read them for yourself. I believe you will be more than satisfied by the answer(s) you find therein.

I don’t think it is perfect either (nothing/nobody is..). But like I have mentioned, the portrayal on this site seems to assign a higher than reasonable standard of expectations that no company could live up to.

I have no problem with good ideals being suggested although FM seems to present in a tactical context which doesn’t mesh with the suggestions. When I read these articles this is what it sounds like to me:

“Crime in the city is at a high level. How can we fix his problem? Let’s encourage better family values so children don’t grow up to be criminals! Problem solved!”

The articles read as if the Big4 are in a pattern of shredding documents and helping clients commit fraud. In the spectrum of doing a very good job on one end, to being evil on the other, the entire site seems to point to evil but I think the needle is closer to the other end. That is just my opinion though. The sky is not falling despite what Chicken Little is writing about on any given day.

I’ll reiterate I don’t think anybody or any company is perfect. I also think the rhetoric used to discuss the problems on this site is not as productive as it could be.

@89 – it makes no sense because people are people and human nature hasn’t really changed. You mention many things that are evidence of people being “bad”. What about the way the Chinese were treated building the railroads? What about wiping out the American Indians? What about the Roman and Greek oppression of their constituents? What about the Holocaust? In any time period we can find greedy and ruthless people. This has not changed and likely never will.

1. YOU: The point of any business is to make money and the Firms are no different.

ANSWER: yes,the BIG 4 have to make money,but you and i think them are forgeting the very important aspect of all this—“PUBLIC” ACCOUNTING! These oligopolies audit 90% of all Global Public corporations! They are failing at it because the focus is on $$$$ and not the “SHAREHOLDERS of public companies”,hence audit opinions that now mean nothing.The model clearly broken.

Let me make this simple for you :
What would you say if your local Electric Utility turned your power on/off because that “MADE THEM MORE MONEY”.You would be livid,and demand why you were not getting uninterupted power.
SAME WITH BIG 4 AUDIT-the firms are not just plain-vanilla organisations out to make money(thats the role of the consulting arms)…there is a PUBLIC aspect to this-by certifying 90% of global public companies,the Big 4 firms have a very important role to play in the efficient functioning of global capital markets!!This is not a joke!

LAYOFFS ETC:
The majority of people are not faulting the firms layoffs,the issue is the MANNER in which it is being done:If you want to cut the #’s,”tell people,hey we will cut” and do it! Dont spin people that all is well and then can them the next week-that is why people are bitter.Nobody is asking for anything,just a little RESPECT for people who sometimes work 18hrs a day/7days a week.

@89 – you are funny. What about the greed of the British monarchy and the Roman empire. Greed is not a new concept.

As for the rest – since you liken it all to rape let’s go with that. If a person alleges rape, is it a fact? I suggest that both the accuser and the accused have the right to a fair trial. You, my friend, have tried and convicted based on your personal experience alone. I cannot from your post determine if you are correct and you have been harmed, or if you are simply a poor employee. I can say that if you speak in these terms others will perceive you in ways you really do not want.

So, let’s identify the problem… it seems to me fm has done that — that the firms do not serve the shareholders because the economic model serves the wrong people. Greed is not the problem, it is a vehicle to use to elicit the proper behaviors — and in fm’s opinion it is not directed in the right place.

solutions — they need to reward for the proper behavior — so how do we reward for serving the public good (shareholders) yet at the same time have a viable business model? That is the question.

Sorry — but your anger is pretty irrelevant and not remotely useful. It is yours, and writing it to this blog is merely a cry for validation. I cannot validate nor condemn your situation on a blog… that you need to do through real live friends.

@J. The model of Big4s as money making machine is not failed, not yet. But Big4s as responsible independent auditors have failed miserably.

This is NOT just an issue of “not being perfect”. There is a giant hole on the wall. Can you see it?

“The articles read as if the Big4 are in a pattern of shredding documents and helping clients commit fraud.” No, FM did not say anything close to that. You said it. FM just made a simple point:
“The auditor’s client is the shareholder and investor in the company, not the company’s management.” Is this statement just a common sense? If you even have problem to take that point, my friend, it is time to change your career.

“The rest of us live in the real world where people want to make money”. Yes, but I don’t understand why being a good auditor would stop people making money. The problem here is that big4 made a lot, a lot, a lot of money by doing a very very shitty job.

The world needs good auditors, not the greedy bastards…

I am glad that you did not disclose the name of your firm. Otherwise, your comments would be very bad PR for them.

The sky will fall, killing all greedy ones, despite what Chicken Little is writing about on any given day.

There appears to be a large selection bias on this website. Instead of looking at just the audit failures that have occurred we should also look at all the audits that are done correctly every year of the 10,000 public companies in the United States. In 2004 in the British Accounting Review Jere Francis’s article “What do we know about audit quality” looked at many of the issues we are discussing on this board. She found that audit failure accounted for far less than 1% of all all audits done in a given year and cost less than .1% of a company’s sales. Also, Francis and Wilson 1988 found that audit failures were more likely to occur in smaller firms than in larger firms. Does this mean that a Big 4 audit is automatically better than a smaller firm? No, but Big 4 firms on average have less audit failures than smaller firms. Additionally, the United States is the only country where a single client can bankrupt an entire firm an all of its partners. This severe litigation does not seem to improve audit quality as other nations such as Canada and the UK have a similar amount of audit failure as the United States.

So if audit failures are relatively rare and inexpensive do we need to fix the process and can we? Francis believes that no regulation could make audit failures more infrequent but a change of incentives for audit partners could have prevented some high profile cases from occurring. First, audit partners should be compensated more equally so that those that those that bring in sales do not get rewarded excessively for risk taking while the rest of the firm bears all of his or her risk. Additionally, partners should be paid more equally as was done in the past because of the required partner rotation after 5 years. The rotation means that partners share each others work more than they did in the past which means they should all share in compensation. Some other firms of internal monitoring could be used to reward partners so that free riding does not occur. However she does not suggest what this measure would be.

If an audit failure rate of less than 1% is too high for you are free to have that opinion. I look forward to hearing people’s responses to these facts.

If there’s a selection bias in the writing it’s because I write the blog and I get to choose what I write about. Me , myself, and I. As I’ve said a million times before, including in my disclaimer on the “About” page, I write about what interests me and what I know. What I know happens to interest me and to be interesting to quite a few more people than I ever imagined.

If there’s a selection bias in the readership, well, that’s as it should be. I don’t need no stinkin’ namby-pamby, goody-two-shoes, Big 4 defenders that live life with their head down and their eyes closed. Like the work, like the folks you work with, even like your clients, but don’t like those that exploit you and don’t like those that are allowing rogues, criminals, and idiots to cheat your family out of their future.

Yes, the audit firms are supposed to play a role in the capitalist system: Provide audit opinions that assure publicly available financial information is complete, valid, and prepared according to applicable standards. These audit opinions are supposed to protect shareholders from dependence on incomplete, inaccurate, and invalid information when making their investment decisions. As another commenter said earlier: They’re getting paid while doing a very crappy job of it.

Citing studies from 1988 and 2004 about “audit failure” is irrelevant. Have you counted the number of settlements that each firm has paid and the amount that is pending? You can’t you say? Why? Because the firms don’t disclose those numbers. I’m the only one who’s not a regulator or the Treasury or the firms themselves counting them up and keeping any kind of tally and it kills them.

The litigation in the US is not severe enough. The Private Securities Litigation Reform Act of 1995 (PSLRA) said that investors cannot proceed with a case unless they already have facts in-hand that strongly suggest a deliberate fraud. Prior to the PSLRA, a case could proceed with minimal evidence and use pre-trial discovery to search for more. Now, you need such evidence just to begin, which may be difficult to obtain. So the cases that do proceed against auditors have been the strongest ones and there have been lots and lots. That were settled. Never went to trial. No one can say that they were without merit because first they passed the stricter tests post-PSLRA and second the auditors are unwilling to fight them on the merits.
Francine

I agree that what you write about is interesting that’s why I am here now and why I read your posts on a daily basis. I also agree that those partners that exploit employees and act criminally should not be defended. However, I do believe that partners that act criminally do so because the firm’s incentive structures are not perfectly aligned with the firm as a whole. The pressure to bring in sales means that partners are encouraged to take on very risky clients that can ultimately ruin an entire firm. One bad client ruined Laventhal Horwath in 1991 and Andersen in the 2000’s. I don’t believe that the Andersen was a bad firm as a whole but the Houston Office was. Krishnan made this argument with pretty convincing evidence in the Journal of Contemporary Accounting Research in 2004.

When it comes to litigation I imagine we will disagree about what is an appropriate amount of risk that audit firms are exposed to. The United States has more lawsuits filed against auditors per year than all other countries in the world combined. However this does not mean that we are getting better audits as audit failure rates are similar around the world. Does this mean that higher risks will get better audits? I don’t know but it appears like you believe this to be the case. Do you have a theory why lower litigation risk abroad does not provide better audit quality? Are partners more honest abroad or are there systems in place that make audits better than what exists in the US.?

Finally, I am not a Big 4 defender in general. Certain firms do preform bad audits and this is a great forum to point out those mistakes. Sometimes it does feel like you generalize one audit failure to mean that an entire firm is corrupt. I feel like that is not a fair assumption to make. I will change my name in the future so that it does not seem so confrontational.

Did you ever read the PCAOB reports? You should, and you should try to get access to the parts they don’t disclose to the public as well. I can tell you about this, if any of these non-disclosure parts leek to the public, you would see the Big4s disappear from the face of earth in a few months.

I don’t know how you define an “audit failure”, but I certainly don’t believe that is less than 1% as you stated. Typically you wont really find out that auditors did a bad job until 1) a client gets in trouble and is being investigated by regulators, 2) you reperformed the audit. My friend, have you ever performed an internal practice review for your firm? I did that every year, and I can tell you, for more than 50% of engagements I reviewed, the quality was bad. What is the biggest problem? There were no thoughts behind those work papers. You could tell the auditors did not put any judgment on what they were doing. They were just rushed through it without truly understanding the client, their business, and it risks. So whose fault it was? The partners. Why? They never set the right tone from the top. THERE IS NO SUCH CLUTURE IN BIG 4 TO ENCOURAGE THEIR STAFF ASKING QUESTIONS. The staffs were treated like machines. It was not a cool thing for them to challenge their managers or partners, of course, the client. They did not get proper training, but got put on the team to “get things done”. The only goal of engagement team was to complete the work under the budget.

Finally, Francine is not bias. She just asked those good questions that we are not allowed to discuss in the firms. Just read the article above, could you imagine any of big 4 partners would say to you that auditor’s client is actually the shareholder and investor in the company, not the company’s management? Of course not….

@98 – no one said you are a poor performer… the statement was that crying foul isn’t good enough… you need to provide some evidence and arguments to support that foul. Otherwise the cry is meaningless to anyone but you and your therapist (which you really seem to need if you do not have one).

@fm — seems you are just as greedy. You write things to incite people so you can get food for thought and more emotionally charged accusations in an effort to promote yourself and your opinion. As you say – it is about you and yourself. What is it really about — finding ways to self promote which will hopefully turn into ways for you to make $$$. Seems you intentionally write things to get an argument going — and you do want those that disagree to join your blogs. You are no more pure than those you criticize… not because you are evil — but cause no one is that pure.

Hey — does this count for the kind of drivel that will get you excited… will this one incite your loyal followers who can’t think for themselves. If so — that is my point. That this kind of language serves no purpose. Just watch the drivel that comes back.

I’m afraid I’ve raised your expectations too high. I am still working on the post which is Part 3 to “What I’d Do..” However, you should be looking to your own firm leadership, regulators, congress, the standard setters, and people with much more influence for “solutions.” My primary focus for the blog is to educate, raise awareness. I will offer “solutions” because I have worked in two Bg 4 firms and other professional services firms and seen what works. But I’m not the one you should be talking to if you’ve got a serious complaint.

Other stories sometimes supersede, such as the Satyam update. And I do have client work. Yes, I have clients and, no, to a previous commenter. I do not make the majority of my income from the blog, although that would be nice given the time I spend on it. I write, speak, and teach/train for others and I am a consultant. So, like others, sometimes real life intrudes on my desire to write all day and night.

@FM – maybe us “stinkin’ namby-pamby, goody-two-shoes, Big 4 defenders ” would take you more seriously if your writing wasn’t formatted similar to hate group propaganda. Your website has the front page look and feel of a newspaper but your articles read like sensationalist alarmism from someone who puts tinfoil on their ceiling to keep the government from brainwashing them with radio waves. Pull your references to old articles outside the body text and stop italicizing and bolding everything like your readers are too dumb to see the point without all the formatting. I can almost see you outside one of our offices with a bullhorn and some birkenstocks.

The system happens to be morally and likely, financially bankrupt. I seriously doubt the long term viability of the partnership system at this point.

It needs to be reformed pretty much no matter what. I think that deep down, the partners themselves probably know this. When you can pay for a stamp of approval that says that we feel that this company has followed GAAP (even when it has not) there is a problem. Sadly, accounting firms themselves are not farsighted enough to see this (or we would never be here), so someone else has to fix it.

Don’t change the topic:This forum is not about FRANCINE! that is not why anyone reads it.

This is about 4 oligopoly’s that a re FAILING at their mission and screwing everyone whilst they are at it.

It is OK to be a cheerleader for BIG 4 audit,but if you really LOVE it that much,you would be open to hearing about how the inherent problems can be fixed-the future viability and survival of BIG 4 AUDIT depends on this-the firms can only f**k up that many times,the jig will be up eventually.

Anony @103 — spot on post. It’s not the known audit failures that measure success or failure, but also the unknown ones hidden because of audit process flaws. One of the biggest problems is that the culture actively discourages independent thought and questioning of the status quo.

The Facts @ 102 — I don’t care what an academic article says about Andersen. Was it Duncan, the audit partner? Was it the Houston office acting rogue? Was it the move from a central partnership to decentralized regions/divisions? Was it management overrides of firm risk control processes? Was it an overzealous prosecutor bent on solving a political problem? Was it a judge whose jury instructions were improper?

Doesn’t matter. What does matter is that Andersen is gone, and its employees now scattered to the winds. Once Andersen was the gold standard of independence and objectivity, and now its reputation is tarnished forever. I was in the Big 5 when Andersen imploded, and I remember quite vividly that the leadership of the other firms made it absolutely clear that there should be no gloating or bad-mouthing of Andersen. Why? Because Andersen was not too different from the other firms, and what happened to Andersen could have happened to any of the other firms at any time.

In fact, it could still happen to any of the big accounting firms at any time. There have been few, if any, fundamental changes at the firms since the Andersen implosion. For example, when EY was being sanctioned by the SEC, it employed the same internal and external spin tactics that Andersen used (to similar effect). The same could be said for Deloitte with respect to its “rogue” insider trading senior leadership partner in Chicago, or for PwC’s India or Japan debacles, or for KPMG’s tax shelter litigation, etc…… If this blog has an overriding purpose (and only Fran knows if it does) — it might be to raise awareness that the same fundamental circumstances that took out Andersen still exist today … and the firms are just as vulnerable (if not more so) as they were in 2002.

Birkenstocks are not my style. Today I’m wearing Prada. And a pair of Louboutin patent leather pumps are in my suitcase. And I hardly need a bullhorn. My voice carries.

I’m still working with the format on this new WordPress site. Lots more to learn to make it easier to read and easier for me to review and edit. That’s why the site says Beta. I bold and italicize because, in a long post, I am trying to make sure you see certain points. Many of my readers are not as well versed in the inner workings of the firms and need have points emphasized. I’m gratified that instead of turning folks off, the long posts cause them to stay on the blog longer. Average time on the blog is > hour.

I choose the magazine format because a multifaceted resource is my goal and objective. I have a variety of different sources of information, opinion, and resources for readers. No other format seemed to accommodate that as well. Plus I like the photos, music, and video clips. I like it. And for those who need to have this material made relatively stimulating and entertaining to read, as well as made relevant to their business and personal life, the combination of words and pictures seems to work to capture their attention.
Francine

As a Big 4’er myself who can see both the good and bad side of the job, it seems to me that in order to make things better it is all a matter of time:

More time for partners to be involved in all aspects of the audit, especially risk assessments and face time with managers and client staff. Ditto managers with seniors. Ditto seniors with assistants

So, to avoid working 24 hours a day we need more partners and managers to spread the load and allow this coaching and effective review of work to occur…

But, as we all know, time = money so either firms pay more for their audits or senior Big 4 staff get paid less, neither of which is gonna happen IMHO, and which also assumes there are enough capable people to be partners / managers in what is an intellectually demanding job (when done right).

My personal opinion is that partners probably are overpaid – spending so much time trying to mirror the executives of the companies they audit they seem to think they should be paid the same (which is too much also, but that’s another story altogether)

On the other hand, I think audit committees (acting for shareholders i.e. The Client as FM started off) should not be looking for cheap audits, but quality. And another truism is that you get what you pay for Again, in this climate that ain’t gonna happen, but now is the time when audits have to be done right… Cue fee reduction negotiations by audit committees and layoffs by the Big 4 to maintain partner income and resulting lower quality audits right at the time when the capital markets need all the reassurance they can get.

I’m afraid there is no solution, as audit is effectively a public service run under a profit making business model. If it became a true public service and we were all on the government payroll and civil service salaries, I predict a mass exodus and we end up at the same point – overworked / underskilled staff.

Quick question, as I am supposed to be working at a client, not responding to comments today… But this will help me with some other writing I’m doing.

The government (i.e. taxpayers) now owns, both in US and abroad, significant portions of large companies that are important to smooth functioning of the capital markets. (Treasury Secretary G’s and Fed Chairman B’s words, not mine…) And I have proposed that the government, as a start, at least for those investments, should cut out the middle man and audit/monitor these investments directly. (After all, the audit firms that were “on the job” when companies like AIG, Fannie Mae, Freddie Mac, GM failed are still their auditors. How screwed up is that?)

This proposed move takes such a large chunk of work out of the private sector (Big 4 firms’ audit universe.) And as we have seen, even without this change the audit firms feel that their audit business is declining so they have to cut people to save their profits… And there are now quite a few audit and accounting professionals already looking for a new job and more to come…

Exactly where would all the “good” people work instead, if not for the government? Don’t you see the shift from private firm auditing to auditing on behalf of the taxpayer? Do you really think you will have a choice of where to work if this shift continues?
Francine

Well, I think it would be a brave partner who would leave his / her position in a Big 4 to be at the behest of a democratically elected government which is liable to change it’s mind on such issues on a whim…

I suppose that it could be forced, by passing laws that required public auditors to do this work (in the UK we have the National Audit Office which does a really good job on checking up on government spending from what I read – not sure if there is a US equivalent) who could be given the budget to lure away Big 4 staff.

However, it would be a huge operation to get all the necessary infrastructure, risk management, quality control, technical support etc etc etc systems up and running, with a risk you would spend a hell of a lot of money creating a Big 5, with the same people and same problems at the end of the day, just under a different roof. The public sector (rightly or wrongly) doesn’t have the best reputation for managing change, and everyone knows how expensive these things are…

For the Big 4 employees who don’t like the thought of working under a new regime, there is always the option of leaving practice altogether and getting a real job in the real productive economy (or what’s left of it) – with the experience you get at Big 4, I think any good senior / manager / partner would have very little trouble getting alternative employment, and for those of us below partner level, probably for at least the same money…

Unless you just go the whole hog and nationalise each of the Big 4, I don’t see practically how this could work. As I said earlier, there is a fundamental mismatch between the public sector service and private sector profit motive in auditing which makes this an intractible problem – and its not just in audit – think healthcare, public transport, public libraries – all areas which have become a disaster area when the profit motive has been introduced, in my country at least.

Up to this point, I’ve been an unapologetic capitalist, but if the only response to terrible leadership and treatment of the lower ranks in the B4 is to say, “it’s a business, deal with it,” I hereby proudly declare myself a commie. I’d like to think displaying a little humanity is not mutually exclusive to running a business.

I can understand the impulse to defend your firm(s), and it’s a good impulse if you occasionally take off the blinders and see the blunders being made. Big picture, a lot of what’s happening is panic, and does more harm to the respective firms’ image to the generation of professionals currently entering the workforce. They’re capitalists, too. But I suspect many talented people will look elsewhere to make their mark, and we’ll be worse off for our short-term thinking.

@110 – some of us do read it exactly for the reason of trying to learn about how people think and how they grow up… including themselves and including FM. As FM said herself — this blog is all about her. @J in @108 had it right.

Yes we do have a comparable office to National Audit Office, the General Accounting Office. There are also Inspector Generals for each department that have some audit responsibility but as we have seen with the SEC, usually only spring into action when they have to criminally investigate something.

My point about working in the public sector is that there really isn’t a choice and may soon be no choice, even for partners. Two firms here, Deloitte and EY are cutting them and the others demoting them or cutting their draw. The opportunity cost of “leaving” may be diminished soon and is already nonexistent for some.

The infrastructure to audit/monitor government and taxpayer investments is already in place. Just needs to scale, which I admit may be harder than it looks. But the existing regulatory, inspecting and auditing organizations need to to start hiring folks out of school and setting up the infrastructure to train them. The Big 4 is not going to be doing much spoon feeding recruits to them anymore.
Francine

@116 — I believe that the capitalism argument is not that drastic. I believe we all understand there are deficiencies in the B4 whether we defend them or attack them. I have been a defender on this blog — but I have plenty of gripes about the work environment. I am just not convinced that the scathing attacks in this blog are generally constructive or even appropriate.

So let’s talk about what doesn’t work. There is a culture of hierarchy to the point of disrespect (at times). People gain respect simply by the title they have and not by the work they do or the value they add. People do not work well in teams because they feel the hierarchy is what matters and not good teaming in which there is upward/downward/sideways and inside out communication — in which all team members are valued. I have created a very different team (not audit) where we do those things. I empower the junior staff to take ownership and even ask them to manage me — by giving me status, bringing the appropriate issues to me and knowing that I am juggling 10 jobs whereas they are juggling 1-2. I have them giving a shout out to each other before they go to me… and problem solving amongst themselves. I hold regular brainstorming meetings, I hold them responsible to QA each other first and then I QA — and we hold peer review meetings. But, I feel like this team is an island at the B4.

What else doesn’t work — the way they schedule people — asssign them to jobs. It is totally dysfunctional. Also, the recognition procedures are out of whack. We get extra bonuses sometimes — but they are not given out based on consistent criteria. People who worked a ton of hours but F’ed up the job may get the bonus $ just cause of the hours. People who work a lot of hours on 1 job may get it, but do that across 5 jobs consistently and no one job thinks you are a superstar. Managers focus on engagements rather than a team that can be spread across many jobs. Managers are so shortsighted to their engagement that the practice development is staggeringly deficient.

All that said — I cannot blast the B4 for raping and abusing people (yet I haven’t gotten home before 11 pm for weeks and also had to work the weekend)… it doesn’t happen all the time like this. The excessive hours are not because people were laid off — no one in my practice and office was laid off — and we are crazy busy with work… no end in sight. That is a good thing right now — if that gives me and my teamjob security… abuse away..

Some people here are trying to get constructive and look at solutions… I think we should all try to go there now — let’s let go of the emotion and get constructive.

With your approach and attitude, there would be no audits done as no audit firms would exist because you would never retain a client. If one firm acted as you suggest and the other Big 4 didn’t, the firm that acted as such would have no business at all.

I find all this bashing on the Big 4 intriguing, especially related to AIG. Did PwC make the decisions to enter a boatload of credit default swaps? No. Does PwC run the risk management of AIG? No. Are there risk factors in 10-K’s that investors can read? Yes. Auditors only make sure the financial statements are not materially misstated and that the disclosures meet the minimum requirements of the SEC. Stop pretending PwC ran the business transactions of AIG or had any responsibility for telling them not to enter certain transactions. If there wasn’t enough info for investors, blame the SEC for not having rigorous disclosure requirements.

Why is it so shocking that the Big 4 is still the same on AIG, Fannie Mae, etc…(although I think there actually have been switches with Fannie/Freddie)? These weren’t botched audits. You act like PwC, EY, DT, KPMG were supposed to issue press releases on these companies with negative news. Management is responsible for disclosing key business items, auditors just make sure they meet the SEC requirements.

The layout on the front page is decent. My gripe is more with the style of writing — it reminds of 9/11 truthers and emails that claim Obama is secretly a Muslim terrorist.

If you have noticed I have garnered some support among your commenters. I think if you took a more serious tone in your writing the big4 defenders would take you more seriously. I put you closer to a 9/11 Truth website than the New York Times I think playing a little more to the middle would actually generate *more* support for your cause rather than less.

Fortunately I am not an accountant or an auditor or I wouldn’t even be able to afford to type out the word Prada.

“If you have noticed I have garnered some support among your commenters.”
That’s pretty funny. This is a blog… My blog. Not the New York Times. It’s more or less an open forum, but a mediated one, and I am the mediator.

Your commentary, any commentary, is at my pleasure. I appreciate constructive discussion of the issues I’m presenting, pro and con, and constructive critique of how I can make the information clearer and more complete. I also like to hear about other issues and stories that readers would like me to write about. Many email or call me off line to give feedback. Actually, many more than comment do so, if you can imagine. The feedback comes from all kinds of people. Most who contact me off line are at senior levels in the firms, industry, journalists, and law firms. They are not comfortable commenting. So actually the commenters are a skewed set of either the fearless or those that believe themselves immunized from any retribution. A few are independent enough to sign their name. Those who choose or have to remain anonymous, even off line, are at a disadvantage in my mind. I can’t judge age, experience, perspective, agenda, etc even though all of those things about me are fully on display for you.

My style of writing, and the point of view, won’t be changing. Not by a long shot. I’m not interested in the least convincing Big 4 defenders to “take me seriously.” Perhaps you should ask the Financial Times, the Wall Street Journal, Compliance Week, and all the others who’ve linked to me if they think my writing sounds like a “9/11 truther” or anti-Obama rant?

You are welcome to start your own blog with a tone you feel is appropriate to the subject matter. Let me know when you do.
I’ll leave some comments.
Francine

This is a disparity between your comment and presence of this site. If you didn’t care about swaying opinion, you wouldn’t spend time developing this site, which is clearly a major time investment.

I’m not sure why anonymous comments would invoke fear of retribution in anyone.

I don’t have time to blog and I don’t care that much about the topic. I actually only added this to my RSS feed to use a second source to confirm any layoff rumors that come up. There hasn’t been much content like that lately (perhaps since that is not the intent of the blog) so perhaps I will unsubscribe.

I wouldn’t expect you to change your point of view. But I think my advice to play more to the middle would generate more readers and productive conversations about the topics you are clearly passionate about.

Do you have a post that explain what you think the responsibility of the Big4 is. One of your articles seems to indicate they are responsible for the financial meltdown. Not being an accountant myself I thought their job was to certify the financial statements were accurate to published standards, and not to advise companies how to run their businesses.

@j
I do care about educating and raising awareness of the role and responsibilities of the audit industry in the financial system, the capitalist system. It’s an underreported topic unless there’s a crisis or big lawsuit. I’m happy with the readership, both in depth and breadth. I will probably hit 1,000,000 page views in the next month or so.

I don’t have a post, that I can recall, that lays it all out in a nice neat package. That’s why there’s over 700 posts and why I’ve been writing for more than two years with no end in sight and no problem finding examples that illustrate my perspective. It’s a complex subject and a long discussion, which is why my original objective was only to build up an audience for such a book. But if you’re tired of my voice, look at this post and try some of the other linked-to authors. I’m not alone in my opinions.

As far a swaying opinion, I have few ways to measure that. I can measure impact in terms of how many read the blog, what kind of people read the blog, how involved they are, and what kind of feedback I get. But that’s a measurement of awareness and understanding of my point of view and the information I present, not of whether I have changed their hearts and minds. As an accountant and auditor, a CPA, I do what can be measured. It’s ingrained.

I appreciate your thoughts and hope you keep reading. I’ve written so much about the layoffs, it’s starting to feel repetitive to me. The cuts continue and I did not set out to focus on staffing issues alone. It happened and it provides a prime example of the mismanagement for the firms on so many levels. And it’s the issue many readers are interested in right now, since it hits them close to home. But the issues are bigger than any particular staffing action in any firm. Those kinds of short-term, reactive measures will continue if the larger issues are not understood and addressed constructively.

I’m a Gemini. I’m an over-communicator. A blog, ideally is a conversation, not a one-sided lecture. That’s why all the comments are interesting and gratifying to me. I just wish some commenters would read the older posts. I seem to have to keep repeating… Oh well…

You are doing a great job here…or rather, you have provided a mechanism to expose the underbelly of the big 4 more specifically of deloitte partners, managers/senior managers who until now discreetly went about their nasty business with people not figuring out what happened and why…now we are all aware and can see through those pathetic folks….

“Fortunately I am not an accountant or an auditor or I wouldn’t even be able to afford to type out the word Prada.”

Re: That comment is uncalled for.

“Do you have a post that explain what you think the responsibility of the Big4 is. One of your articles seems to indicate they are responsible for the financial meltdown. Not being an accountant myself I thought their job was to certify the financial statements were accurate to published standards, and not to advise companies how to run their businesses.”

Re: While it is true that auditors are not there to advise companies on how to run their business, my understanding is that auditors issue a going concern statement. In theory, that should involve some analysis of a company’s risky activities. It seems logical to assume that since auditors by principle should be professionally skeptical and that auditors are responsible for going concern, the financial crisis is well within the scope of their jurisdiction. Correct me if i’m wrong.

I don’t know if the audit model is broken, but at the very least, it’s damaged. I’m sure this has been discussed, but when an auditor becomes dependent financially on a client to remain solvent and pay its fees, how can true independence exist? How reluctant would a firm be to issue a qualified opinon? Isn’t that almost like shooting your revenue pipeline? Sure, you can argue that firms won’t take on excessive risk for reward. But short-term thinking and greed takes over in some instances.

Correct – in the short term mistakes are often made for the sake of immeidate cash/revenue. In the long run protecting one’s reputation will generate a stable and profittable business. I think you have struck another point that adds to the only major comment this post has really produced… the point being that the people paying the bills are not the true client and that this compromises independence. If you add that point to the fact that short term thinking (which is more likely in financial downturns) results in short term decision-making (i.e., not producing the quality work that will maintain your reputation)… then you might have the basis of the “broken model”. This combination is deadly if placed in the wrong hands. This comment is interesting to me.

Once again though – as I am not in audit, I do not see this as broken in my practice area.

I agree. In theory, in the long run protecting one’s reputation will generate stable and profitable business. That’s a line the firm keep throwing out there. There’s still that inherent risk that partners will ignore it. My limited understanding of what goes on in the upper levels is that partners are actively encouraged to generate business.

@m – they have to generate business. They cannot live solely by reputation. Reputation helps maintain annuity clients, repeat (yet not so regular) clients, and via word of mouth bring in new clients. But the growth of that model isn’t particularly fast. Most entrepreneurs seek faster growth and growth beyond the stable and sustainable. They want to “expand”. True expansion requires actively generating new business while still maintaining that reputation.

In my experience it is my job to listen to the client and to find ways to tell them when they are making mistakes or applying a poor methodology. However, once I’ve said my peace, it is their decision to make and it is time to step back and let them run their business. In my experience the client with any integrity want me to tell them the truth, as I see it, good or bad. That is what makes clients happy — if and only if you are right or at a minimum present valuable insight for them to consider.

@136: I totally agree. However often short term and longer term goals do not align. Long term, hearing and learning from an independent (in a general sense) view of the cold hard truth should make the client stronger, short term it takes on a more personal and troublesome tone for those involved if the news is not good. Telling the client things are getting better while justifying internally why something isn’t a big audit issue (when it should be) is not the right way to do it – but it happens….and just happens to keep the client feeling better about themselves.

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Francine McKenna (@retheauditors) is the Transparency Reporter at MarketWatch.com, a Dow Jones publication, where her work is also featured frequently in the Wall Street Journal. McKenna had more than twenty-five years of experience in consulting and professional services including tenure at two Big 4 firms, both in the US and abroad before becoming a journalist. Look for her prior columns, "Accounting Watchdog" at Forbes.com and "Accountable" at American Banker. For more information, click "About" at the bottom of this page. For more information contact Francine McKenna, fmckenna@mckennapartners.com